RSI Indices Indicator Overbought and Oversold Levels
RSI stock indices indicator values of above 70 are considered to be overbought; indices traders consider points above the 70 level as market tops and good points for taking profits.
RSI stock indices indicator values of below 30 are considered to be oversold; indices traders consider points below the 30 level as market bottoms and good points for taking profits.
These overbought and oversold indices trading levels should be confirmed by RSI center line crossovers stock indexes trading signals. If these regions give a market top or bottom, this stock indices signal should be confirmed with RSI center line crossover indices signal. This is because these overbought and oversold levels are prone to giving whipsaws in the stock indexes trading market.
In the stock indexes trading example explained and illustrated below, when the RSI hit 70, it showed that the indices trading was overbought, and this could be considered a trading signal that the indices trend could reverse.
The stock indices chart then reversed the indices trend after a short while and started to move downwards, until it got to the oversold levels. This was considered a stock indices market bottom after which the stock indices chart started to move upwards again.
Overbought and Oversold Levels - RSI Indices Trading Strategies
Over Extended Overbought and Oversold Levels
When the stock indexes trading market is trending strongly upwards or downwards the RSI stock indices indicator will stay at these overbought and oversold levels for a long time. When this happens these overbought and oversold regions cannot be used as stock indices market tops and stock indices market bottoms because the RSI stock indices indicator will stay at these levels for an extended period of time. This is the reason why we say that the overbought and oversold regions are prone to indices trading whipsaws and it is best to confirm these stock indexes signals using RSI center-line crossover strategy.
Over Extended Overbought and Oversold Levels - RSI Indices Indicator Strategy