RSI is a tool which measures the relative strength index of the market. It is a complex math and we are not going to dive deep in the math of it, you can find everything about how RSI is calculated online. But as a trader it is more important to know how to use it properly than to know how it is calculated.

The value of RSI bounces between 0% and 100%, 0% is extremely oversold market and 100% is extremely overbought market. But as it becomes exponentially difficult to each either of the extreme values, 80% is considered general highly over bought region and 20% is considered highly over sold region.

But the main strength of RSI lies in divergences. Bullish and bearish divergences.

Bullish divergence

Bullish divergence is when price is going down but the RSI is going up. It shows the strength of market is strong and price is trying to push up. It is generally one of the strongest trading indicator, if the signal is clear. It signifies the bottom of the market and a trend reversal.

Bearish divergence

Bearish divergence is when price is going up but the RSI is going down. It shows the strength of market is weak and price is trying to push down. It is generally one of the strongest trading indicator for predicting top.

Trading course series - #1 - Introduction

Trading course series - #2 - Risk management

Trading course series - #3 - Risk reward ratio

Trading course series - #4 - Patterns(1)

Trading course series - #5 - Patterns(2)

Trading course series - #6 - Patterns(3)