When it comes to trading, timing is everything. Buy too early, and you risk a false breakout. Sell too late, and your profits all vanish or become non-existent. This is where the Relative Strength Index (RSI) comes in.
RSI is a simple but powerful technical indicator that helps traders read momentum and predict potential reversals. Whether you’re trading through a cash account or a margin account, knowing the best RSI strategies can help you make smarter and more confident trading decisions.
Here are five RSI strategies you can use.
1. The Classic Overbought and Oversold Strategy
Let’s start with the basics. The RSI measures the strength of price movements on a scale from 0 to 100. When it goes above 70, the asset is considered overbought, meaning it might be due for a correction. And when RSI drops below 30, it’s oversold, suggesting a potential rebound.
If you see RSI crossing below 70, it could signal a good time to sell or tighten your stop losses. Conversely, when it climbs above 30, you might consider buying or preparing for a bounce.
Pair this strategy with support and resistance zones for confirmation.
2. RSI Divergence Strategy
This one is a favourite among experienced traders because it can reveal trend shifts before they happen. Divergence occurs when the price moves in one direction, but the RSI moves in the opposite direction.
Bullish divergence indicates a possible trend reversal upward when the price makes lower lows, but the RSI makes higher lows. On the other hand, when price makes higher highs and RSI makes lower highs, it’s called bearish divergence, showing a potential downturn ahead.
Divergence is often subtle, but when spotted correctly, it’s one of the most reliable ways to catch early reversals. You can amplify your profits by learning what is a margin account and using it for leverage.
3. RSI Swing Rejection Strategy
This strategy focuses on RSI behaviour rather than price movement. It identifies when the RSI tries to break through a key level but gets rejected, signalling a potential trend continuation.
A bullish rejection example would be RSI falling below 30 (oversold), rising above 30, then dipping slightly – but not falling below 30 again – and finally breaking its recent high. This pattern suggests strong buying momentum returning to the market.
The reverse of this process applies to bearish rejections.
4. RSI Trendline Break Strategy
Just like you draw trendlines on price charts, you can also draw them directly on the RSI. It works by drawing a line connecting RSI highs in a downtrend or RSI lows in an uptrend. When RSI breaks its trendline before the price does, it’s often a clue that momentum is shifting.
Ultimately, the price might follow soon.
This approach gives you early signals before the broader market catches on, helping you react faster.
5. Adjust RSI Settings to Match Your Trading Style
The standard RSI uses a 14-period calculation, but you can modify it to fit your approach. For example, for short-term traders, a 7- or 9-day period RSI is ideal for quick signals.