RSI Trading Indicator Overbought & Oversold Levels

RSI indicator values of above 70 are considered to be overbought: Stock traders consider points above the 70 level as market tops & good points for taking profits.

RSI indicator values of below 30 are considered to be oversold: Stock traders consider points below the 30 level as market bottoms & good points for taking profits.

These overbought & oversold Indices levels should be confirmed by RSI center line crossovers signals. If these regions give a market top or bottom, this signal should be confirmed with RSI center line crossover signal. This is because these overbought & oversold levels are prone to giving whipsaws in the market.

In the example below, when the RSI hit 70, it showed that the trend was overbought, & this could be considered a signal that the trend could reverse.

The market trend then reversed the trend after a short while and started to move downwards, until it got to the oversold levels. This was considered a Indices market bottom after which the market trend started to move upwards again.

Overbought & Oversold Levels - RSI Trade Strategies

Over Extended Overbought & Oversold Levels

When the market is trending strongly upward or downward the RSI indicator will stay at these overbought & oversold levels for a long time. When this happens these overbought & 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 & oversold regions are prone to trading whipsaws & it's best to confirm these signals using RSI center-line crossover strategy.

Over Extended Overbought & Oversold Levels - RSI Trading Indicator Strategy