Example of Positive-Negative RSI Reversals

During trends, the RSI readings may fall into a band or range. During an uptrend, the RSI tends to stay above 30 and should frequently hit 70. During a downtrend, it is rare to see the RSI exceed 70. In fact, the indicator frequently hits 30 or below. These guidelines can help traders determine trend strength…

The RSI compares bullish and bearish price momentum and displays the results in an oscillator placed beneath a price chart. Like most technical indicators, its signals are most reliable when they conform to the long-term trend. True reversal signals are rare and can be difficult to separate from false alarms. A false positive, for example,…

The moving average convergence divergence (MACD) is another trend-following momentum indicator that shows the relationship between two moving averages of a security’s price. The MACD is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA. The result of that calculation is the MACD line. A nine-day EMA of the MACD, called the signal line, is then plotted on top…

The relative strength index (RSI) measures the price momentum of a stock or other security. The basic idea behind the RSI is to measure how quickly traders are bidding the price of the security up or down. The RSI plots this result on a scale of 0 to 100. Readings below 30 generally indicate that…

Another trading technique examines RSI behavior when it is reemerging from overbought or oversold territory. This signal is called a bullish swing rejection and has four parts: As you can see in the following chart, the RSI indicator was oversold, broke up through 30, and formed the rejection low that triggered the signal when it…