Relative Strength Index (RSI)

Just like the Stochastics, the Relative Strength Index (RSI) oscillates between the 0 and 100 values. However, the overbought and oversold level are usually set at 70 during an uptrend and 30 during a downtrend. Besides this, the way to interpret the Stochastics is almost identical to the Stochastics indicator.

While both Stochastics and RSI are considered to be momentum oscillators, the RSI works best during a trending market as a reading above 50 signals an overall uptrend and vice-versa.

The trick with the RSI is to look for potential support and resistance level first and then finding market entry opportunities. To do so, instead of focusing on level 50, we can draw two additional lines, 40 and 60 on the RSI window.

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