01Entry idea
Classic oversold bounce
A mean-reversion long entry for ranging markets, triggered when momentum turns back up from oversold.
MomentumExpert Curated · Playbook
RSI
Relative Strength Index
A momentum oscillator that measures the speed and magnitude of recent price changes on a bounded 0–100 scale.
RSI is a momentum oscillator that measures the speed and magnitude of recent price changes on a 0–100 scale. Developed by J. Welles Wilder, it signals overbought above 70, oversold below 30, and weakening momentum through divergences with price. Default lookback: 14 bars.
The Relative Strength Index (RSI), developed by J. Welles Wilder, compares the magnitude of recent gains to recent losses over a chosen lookback (typically 14 bars). Readings above 70 are conventionally "overbought," below 30 "oversold" — but the real power of RSI lies in how it behaves inside those zones and in divergence against price.
In strong trends, oversold and overbought levels shift: an uptrend may respect RSI 40 as support and push well above 70 without reversing. Treat RSI as a relative measure of momentum rather than a mean-reversion trigger on its own.
Entry ideas
How do I enter trades using RSI?
03ideas
02Entry idea
Trend-following pullback
A trend-aligned long entry that buys pullbacks to the mid-range of RSI during confirmed uptrends.
03Entry idea
Bullish RSI divergence
A reversal-anticipation entry that spots waning downside momentum before the price turns.
Exit ideas
When should I exit an RSI trade?
03ideas
01Exit idea
Overbought exit
A momentum-peak exit that locks gains when the oscillator signals stretched upside.
02Exit idea
Momentum failure
An early exit that cuts trades losing steam before they reach overbought.
03Exit idea
Bearish divergence exit
A proactive exit triggered when rising price fails to produce rising momentum.
Utilities
What else is RSI good for?
02ideas
01Utility
Trend-strength filter
A bias filter that keeps trades aligned with prevailing momentum, improving any directional system.
02Utility
Range-regime detection
A regime detector that flags ranging markets so trend systems can stand aside.
How do I read RSI?
- Above 70 = overbought. In strong uptrends, RSI can stay above 70 for many bars without reversing — treat "overbought" as context, not a sell signal.
- Below 30 = oversold. In strong downtrends, RSI can stay pinned below 30 for extended periods. Same rule applies in reverse.
- The 50 line is momentum equilibrium. In uptrends, RSI typically finds support near 40–50 on pullbacks; in downtrends, resistance near 50–60 on bounces.
- Bullish divergence: price prints a lower low while RSI prints a higher low. Signals fading downside momentum, often before a reversal.
- Bearish divergence: price prints a higher high while RSI prints a lower high. Signals fading upside momentum.
What are the default RSI settings?
| Parameter | Default | When to adjust |
|---|---|---|
| Lookback period | 14 | Wilder's original setting. Drop to 9 for faster signals on intraday charts; raise to 21 for less noise on daily charts. |
| Source | Close | Most common. Some traders use HLC3 or HL2 for smoother readings on volatile assets. |
| Overbought threshold | 70 | Raise to 80 in strong uptrends to filter trend-continuation false sells. |
| Oversold threshold | 30 | Drop to 20 in strong downtrends to filter trend-continuation false buys. |
| Smoothing method | Wilder (RMA) | Pine Script's ta.rsi() uses Wilder's smoothing by default. Custom EMA-based RSIs produce different values. |
How do I code RSI in Pine Script?
//@version=5
indicator("RSI Example", overlay=false)
length = input.int(14, title="Length", minval=2)
src = input.source(close, title="Source")
rsiValue = ta.rsi(src, length)
plot(rsiValue, title="RSI", color=color.purple, linewidth=2)
hline(70, "Overbought", color=color.red, linestyle=hline.style_dashed)
hline(30, "Oversold", color=color.green, linestyle=hline.style_dashed)TradingView's built-in ta.rsi() handles Wilder's smoothing for you, so you don't need to compute average gains and losses by hand. Wire length and src to inputs so users can tune both without editing the script. Plot horizontal lines at 70 and 30 to mark the conventional thresholds — a small detail that makes the chart instantly readable.
How is RSI calculated?
RSI compares the average size of up-bars to the average size of down-bars over the lookback period, then maps that ratio to a 0–100 scale.
- 1.For each bar, compute the price change versus the previous close.
- 2.Separate gains (positive changes) from losses (the absolute value of negative changes).
- 3.Smooth gains and losses with 14-bar Wilder smoothing (RMA in Pine Script) to get AvgGain and AvgLoss.
- 4.Compute the relative strength: RS = AvgGain / AvgLoss.
- 5.Convert to RSI: RSI = 100 − 100 / (1 + RS).
When does RSI fail?
RSI works in ranging markets where price oscillates around a mean — it's mean-reversion-friendly by design. It fails reliably in three regimes.
Strong directional trends are the most common failure: in a sustained breakout, RSI can stay above 70 for days. Traders selling at 70 in a runaway market get steamrolled. Wilder himself noted that "overbought" is a statistical state, not a reversal signal.
Low-liquidity instruments produce erratic candles, which inflate RSI's volatility and generate false oversold/overbought readings. Small-cap stocks and exotic crypto pairs often print signals that look perfect on the chart and lose money in execution.
News-driven gaps push RSI below 30 instantly, but the bounce often doesn't come until much lower. RSI doesn't model fundamental shifts, so its signals during news events are unreliable.
Pair RSI with a trend filter (such as 200 EMA direction or a higher-timeframe MACD) to gate when overbought/oversold signals are trade-worthy.
What mistakes do traders make with RSI?
- Selling at RSI 70 in a strong uptrend. Overbought is statistical, not predictive. In trends, sustained 70+ readings indicate strength — the right play is buying pullbacks toward 40, not shorting the high.
- Treating divergences as instant entries. Divergences indicate weakening momentum but don't pinpoint exact tops. Wait for price confirmation (a broken swing low, a candle pattern) before acting.
- Using RSI on one timeframe in isolation. Daily RSI = 75 with hourly RSI = 25 is a very different setup from both at 75. Always check at least two timeframes.
- Chasing oversold readings during news events. A gap from earnings or macro data has structural causes RSI doesn't capture. Wait for one full session of normal trading before reacting.
- Tuning the period to fit one backtest. A 9-bar RSI may look great in your test window but overfit. Stick with 14 unless out-of-sample data justifies otherwise.
How does RSI compare to similar tools?
| Indicator | When to prefer |
|---|---|
| Stochastic | Stochastic reacts faster than RSI; better for very short timeframes (1–5 min) and choppy intraday markets. |
| MACD | MACD measures trend direction and strength; better for swing trades where direction matters more than mean-reversion. |
| Bollinger Bands | Bollinger Bands give the volatility context (how stretched is this move?) that RSI alone can't provide. |
RSI FAQ
What's a good RSI period for day trading?
Most day traders stick with the default 14, sometimes dropping to 9 for faster signals on 1–5 min charts. Going below 9 produces too many false signals to be useful. If you need faster responsiveness without smaller periods, switch to the Stochastic Oscillator instead — it is designed for short-timeframe sensitivity.
Does RSI work on crypto?
Yes — RSI works on any asset with continuous price data. Crypto markets are 24/7 and highly volatile, which makes RSI signals plentiful but also raises the false-signal rate. Pair with a trend filter like a 50 or 200 EMA on the same timeframe to gate signals to the prevailing direction.
Why does RSI sometimes give false signals?
RSI assumes price will mean-revert. In strong directional moves (sustained trends, breakouts, news shocks), price doesn't mean-revert and RSI's overbought/oversold thresholds become misleading. Identify the trend regime first; in trending markets, use RSI for pullback entries, not reversal entries.
Can I use RSI as a standalone strategy?
Most successful RSI strategies combine it with at least one filter: trend direction (e.g., 200 EMA), volatility regime (e.g., ATR), or volume confirmation. Standalone RSI gets shaken in trending markets — it shines as a momentum confirmation layer alongside a directional indicator, not as the sole entry trigger.
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View BBAbout these ideas
Each entry, exit, and utility rule in the Playbook is hand-picked from established trading literature, validated against historical backtests, and reviewed by the PineWiz team. We add new ideas as we encounter them and refresh existing ones when market behavior or default settings shift. Last review: .
Educational content. Not financial advice.