RSI Overbought and Oversold

This is a guide of the trading strategy. For a guide on how to read the graphs on the analysis page, click here.

The relative strength index (RSI) measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset. It is a momentum indicator and when the RSI hits the extremities, it indicates that the stock is losing it’s momentum and it likely to change direction. These extremes are know as overbought (when it’s too high and likely to change downwards) or oversold (when it’s too low and likely to change upwards).

We use RSI with a window of 14 periods.

The Data Trader RSI Overbought and Oversold strategy generates a BUY entry signal when the RSI drops below 30, indicating oversold. Exit when the RSI goes above 70, indicating overbought. It generates a SELL entry signal when the RSI goes over 70, indicating overbought. Exit when the RSI drops below 30, indicating oversold.