What is RSI?
The RSI (Relative Strength Index) is a technical indicator that measures the speed and change of price movements of stocks or other assets. It was created by J. Welles Wilder and ranges from 0 to 100. RSI helps traders identify whether the market is overbought or oversold, which can signal a potential price reversal.
- A value above 70 suggests the asset may be overbought.
- A value below 30 suggests the asset may be oversold.
- A value around 50 indicates a neutral market.
The most common RSI setting is a 14-period lookback.
How to interpret RSI in swing trading?
1. Trading with the trend – using pullbacks
In a strong uptrend, watch for RSI to drop into the 30–40 zone and then start turning upward. This often signals a pullback, which can be a good entry opportunity in the direction of the trend.
Example: The stock is sharply rising, RSI dips to 35, the price pulls back slightly to support, then resumes upward movement. Entering a long position here can be effective.
2. Trading against the trend – mean reversion
If RSI is above 70, it may indicate the market is overbought and due for a correction or reversal. Conversely, RSI below 30 suggests oversold conditions and a possible rebound. This strategy works best in sideways markets or when price moves within a tight range.
Warning: Trading against the trend is riskier and requires precise timing and confirmation from other indicators or price action.
3. RSI divergence
Another useful signal is called divergence:
- When price makes new highs but RSI forms lower highs, this may indicate weakening momentum and a potential trend reversal.
- Conversely, if price makes lower lows but RSI forms higher lows, it could signal a coming upward reversal.
How to implement RSI into your swing trading?
- Choose an asset with a clear trend.
- Watch RSI values:
- For buying in an uptrend, look for RSI around 30–40 with confirmation from price reversal.
- For selling (short) in a downtrend, look for RSI above 60–70 with confirmation of reversal.
- For buying in an uptrend, look for RSI around 30–40 with confirmation from price reversal.
- Use stop-loss orders near support or resistance levels.
- Set realistic profit targets (e.g., risk-to-reward ratio 1:2 or 1:3).
Summary
| RSI Value | Meaning | Recommended Action |
| Above 70 | Overbought market | Consider exiting or shorting |
| 30–40 | Pullback in trend | Enter position with trend |
| Below 30 | Oversold market | Possible rebound – buy signal |
| Around 50 | Neutral zone | Wait for clear signal |
RSI is a great tool that can help you better time your entries and exits in swing trading. However, always combine it with other indicators and practice proper risk management.
 indicator is and how to use it effectively in swing trading strategies. Learn how to interpret RSI values to identify overbought or oversold conditions, spot pullbacks for trend entries, detect divergences signaling reversals, and apply proper risk management for better trade timing.){kind=link}