Relative Strength Index Interpretation

Relative Strength Index

Interpretation
RSI is plotted vertical scale from 0 to 100. The 70% and 30% levels are used as warning signals. RSI over 70% are considered overbought and below 30% are considered oversold. The 80% and 20% level used by some traders. The meaning depends on the time frame considered. An overbought reading in 9-day RSI is not as significant as RSI for 12-month period.
An overbought or oversold condition only implies that there is a high probability of a counter reaction. It is an indication that there may be able to buy or sell, but does not provide the final signal. RSI signals should always be used in conjunction with trend-reversal signals offered by the price itself.
RSI can be plotted for any period of time. Bum originally recommended the use of 14-day RSI. Since then, 9, 10 and 25-day RSIs have also become popular. Shorter term, the more sensitive oscillator. If the user is trading short-term moves, the period can be shortened. Extension of the deadline does oscillator smoother and narrower in amplitude.
By using RSI, a crossover above 70% level is a warning signal to prepare to sell and, conversely, when the RSI falls below 30% you have information to prepare you to buy. The actual buy and sell signals are given when the RSI changes (see below). RSI passes through the 50% level is used as buy and sell signals by some traders.