What RSI measures
RSI is a 0–100 oscillator comparing the size of recent gains to recent losses over (usually) 14 periods. Above 70 is called 'overbought', below 30 'oversold'. It measures the speed of a move, not its direction.
The beginner trap: 'overbought' does NOT mean sell. In a powerful uptrend, RSI can sit above 70 for weeks while the stock keeps climbing. Selling every time RSI hits 70 is a great way to exit winners early.
Better ways to use it
RSI is most useful at the extremes in a range-bound stock (fade 70, buy 30), and for spotting momentum shifts: in a strong uptrend, RSI dips often bottom around 40, not 30. The centreline (50) itself is a rough bull/bear divider.
Three practical reads
Skip 'overbought = sell'. RSI earns its keep three ways:
- In a range: fade the extremes — near 70 look for a stall, near 30 look for a bounce.
- In a trend: read where dips bottom — an uptrend's pullbacks often hold around 40, not 30.
- The 50 line: above it is bullish territory, below it bearish — a quick regime check.
The overbought myth, concretely
Pull up almost any big winner and you'll see RSI pinned above 70 for weeks while the stock doubled. Someone selling every 70-print exited at the start of the best part of the move. 'Overbought' describes strength, not a top — it only becomes a fade in a range-bound stock, and even then you wait for price to confirm.