RSI Indicator Over-bought and Oversold Levels
RSI technical indicator values of above 70 are considered to be over bought: traders consider points above the 70 level as market tops & good points for taking profits.
RSI technical indicator values of below 30 are considered to be over sold: traders consider points below the 30 level as market bottoms & good points for taking profits.
These overbought and oversold levels should be confirmed by RSI center line cross-overs signals. If these regions give a market top or bottom, this signal should be confirmed with RSI centerline cross-over signal. This is because these overbought & over-sold levels are prone to giving whipsaws in the market.
In the example illustrated below, when the RSI hit 70, it showed that the xauusd was overbought, and this could be considered a signal that the trend could reverse.
The chart then reversed the trend after a short while & started to move downwards, until it got to the over-sold levels. This was considered a market bottom after which the chart started to move upwards again.
Overbought and Oversold Levels - RSI XAUUSD Methods
Over Extended Overbought & Oversold Levels
When the market is trending strongly upwards or downward the RSI indicator will stay at these over-bought & over-sold levels for a long time. When this happens these overbought and oversold regions cannot be used as market tops & market bottoms because the RSI indicator will stay at these levels for an extended period of time. This is the reason why we say that the overbought and over-sold regions are prone to xauusd whipsaws and it is best to confirm these signals using RSI center-line cross-over strategy.
Over Extended Overbought and Oversold Levels - RSI Indicator Strategy Method
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