Up-trend down-trend use of RSI
In one of Chris Rowe's (Tycoon Report) article on the US$, he mentioned that RSI's are good at calling tops in down-trends and bottoms in up-trends.
Why is that? What's the mechanics behind it?
Answers
2082 points
alanj answered one year ago …
History and experience. When the RSI is above 70 it is considered to be overbought. That means it has become over saturated with buyers. When it starts to head back down that means there's not enough volume of buyers (or new money) to keep driving the price up. And now the buyers have become sellers to lock in profits or to protect from heavy losses. When the RSI is below 30 the opposite is true. It has now become oversold.
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474 points
spider348 answered one year ago …
RSI is an oscillator so it should be treated as one.
A trick that might work for reversals.
Look for divergences between RSI and price on a daily, weekly, monthly chart.
If RSI is coming off it's high , breaking down through 70 or so and price is making new highs - you could be looking at a potential short term reversal . For RSI coming off lows and breaching 30 but price is making new lows - a potential bottom reversal.
Conversely, if RSI is coming off lows and price is near recent highs - it could be a momentum continuation higher.
