RSI Indicator Overbought and Oversold Levels
RSI indicator values of above 70 are considered to be overbought; traders consider points above the 70 level as market tops and good points for taking profits.
RSI indicator values of below 30 are considered to be oversold; traders consider points below the 30 level as market bottoms and good points for taking profits.
These overbought and oversold forex levels should be confirmed by RSI center line crossovers forex trading signals. If these regions give a market top or bottom, this forex trading signal should be confirmed with RSI center line crossover forex signal. This is because these overbought and oversold levels are prone to giving whipsaws in the forex market.
In the example below, when the RSI hit 70, it showed that the forex currency was overbought, and this could be considered a trading signal that the trend could reverse.
The currency then reversed the trend after a short while and started to move downwards, until it got to the oversold levels. This was considered a forex market bottom after which the currency started to move upwards again.
Overbought and Oversold Levels - RSI Forex Trading Strategies
Over Extended Overbought and Oversold Levels
When the forex market is trending strongly upwards or downwards the RSI indicator will stay at these overbought and oversold levels for a long time. When this happens these overbought and oversold regions cannot be used as forex market tops and forex 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 oversold regions are prone to forex trading whipsaws and it is best to confirm these forex trading signals using RSI center-line crossover strategy.
Over Extended Overbought and Oversold Levels - RSI Indicator Strategy