RSI Indicator Overbought & Oversold Levels
RSI indicator values of above 70 are regarded and considered to be over-bought: Index traders consider points and levels above the 70 level as market tops and good points for taking and booking profits.
RSI indicator values of below 30 are considered to be oversold: Index traders consider points and levels below the 30 level as market bottoms and good points for taking and booking 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 using RSI center line cross-over 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 trade 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 over-sold levels. This was considered a Indices market bottom after which the market trend started to move upwards again.
Overbought & Oversold Levels - RSI Strategies
Over Extended Over-bought and Over-sold 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 can't be used as market tops & market bottoms because the RSI indicator will stay at these technical levels for an extended period of time. This is the reason/explanation why we say the over-bought & oversold regions are prone to trading whipsaws and it's best to confirm these signals using RSI center-line cross-over strategy.
Over Extended Over-bought and Over-sold Levels - RSI Trading Indicator Strategy
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