The Relative Strength Index (RSI) is a popular momentum indicator used in technical analysis. Here's a basic guide in short:
1. RSI Range: RSI measures the speed and change of price movements and is scaled from 0 to 100. Typically, readings above 70 indicate overbought conditions, while readings below 30 suggest oversold conditions.
2. Signal for Overbought and Oversold: Traders use RSI to identify potential reversal points. When RSI goes above 70, it may be a signal to sell (overbought). When it drops below 30, it may be a signal to buy (oversold).
3. Divergence: Pay attention to RSI divergences with price movements. If RSI and price move in opposite directions, it can signal a potential trend change.
4. Use with Other Indicators: RSI is often used in conjunction with other indicators to make more informed trading decisions.
5. Timeframes: RSI can be applied to various timeframes, from short-term to long-term, depending on your trading strategy.
Remember that RSI is just one tool in your trading toolbox. It's essential to use it in conjunction with other analysis methods and risk management techniques for effective trading decisions.