Frequently asked questions that are usually asked in this indicator
1. What does "overbought" and "oversold" mean in the RSI?
When the RSI is above 70, the asset is overbought, meaning it has risen too much and too fast, and could correct or turn lower soon. If the RSI is below 30, it is oversold, indicating that the price has fallen too much and could bounce back up.
2. Does the RSI always correctly predict trend changes?
Not always. While the RSI is useful for identifying potential reversal points, it does not guarantee that the price will change direction. It is important to use it in conjunction with other indicators or market analysis to make more informed decisions.
3. What time frame is best to use RSI?
The standard RSI is calculated with a 14-day period, but you can adjust it according to your strategy. For short-term trading, you could reduce the period to 9 or 7 days, while for longer trading you can use 21 or more days.
4. What happens if the RSI stays above 70 or below 30 for a long time?
When the RSI stays at extreme levels for a long time, it can indicate that the current trend is very strong. For example, if it is above 70 for a prolonged time, the asset could be in a very strong uptrend, and vice versa for a downtrend if it is below 30.
5. What is "divergence" in RSI and how is it used?
A divergence occurs when the asset price moves in one direction, but the RSI moves in the opposite direction. This can be a sign that the current trend is losing strength and a change in direction is possible. For example, if the price is rising but the RSI is falling, it could be a warning of a possible decline.
6. Can I use RSI for any asset?
Yes, RSI can be used in any market: cryptocurrencies, stocks, futures, etc. It works the same way in all of them, measuring whether the asset is overbought or oversold.
7. What is a "false positive" in the RSI?
A false positive occurs when the RSI indicates an overbought or oversold signal, but the price does not reverse as expected. This is why it is recommended to use the RSI in conjunction with other indicators to avoid relying on a single signal.
