Introduction
You've already learned candlesticks and moving averages. Now it's time to add another powerful tool: the RSI (Relative Strength Index).
"Is the current price move strong or weak? Is momentum building or fading?"
While moving averages show you direction (up or down), RSI shows you momentum (how fast and how strong the move is).
Moving Averages = The steering wheel (which direction are we going?)
RSI = The speedometer (how fast? Are we accelerating or slowing down?)
What is RSI?
RSI stands for Relative Strength Index.
It's a momentum indicator that measures the speed and magnitude of recent price changes. Essentially, it tells you whether buying pressure or selling pressure is currently stronger.
RSI does NOT tell you the trend direction (that's what moving averages do)
RSI tells you the strength of the current momentum
How RSI Works (Simplified)
RSI compares recent gains to recent losses over a specific period (usually 14 candles).
- The average of all upward price moves (gains) over the last 14 periods
- The average of all downward price moves (losses) over the last 14 periods
- It then converts the result into a number between 0 and 100
What this means:
- Many strong upward moves → RSI high (toward 100)
- Many strong downward moves → RSI low (toward 0)
- Balanced gains and losses → RSI around 50
Understanding the 0-100 Scale
RSI is displayed as a line that moves between 0 and 100.
What Each Zone Means:
- 0 = Extreme bearish momentum (price falling hard)
- 100 = Extreme bullish momentum (price rising hard)
- 50 = Neutral (gains and losses balanced)
- Above 50 = Bullish momentum (buyers in control)
- Below 50 = Bearish momentum (sellers in control)
RSI appears in a separate panel below your price chart (not on the chart itself). You'll see a line moving up and down between 0 and 100, with horizontal reference lines at 30, 50, and 70.
Overbought and Oversold Zones
The most common way traders use RSI is to identify overbought and oversold conditions.
RSI above 70 suggests very strong upward momentum. The market might be "overextended."
Interpretation: A pullback or correction may be coming soon.
RSI below 30 suggests very strong downward momentum. The market might be "oversold."
Interpretation: A bounce or reversal may be coming soon.
RSI at 50 is the momentum midpoint.
Above 50: Bullish momentum
Below 50: Bearish momentum
"Overbought" does NOT automatically mean "sell now"
"Oversold" does NOT automatically mean "buy now"
In strong trends, RSI can stay overbought (>70) or oversold (<30) for extended periods. You need to check the overall trend (using MAs) before making decisions.
Context Matters: Strong Trends
Here's one of the most important lessons about RSI:
In strong trends, RSI can stay in extreme zones for a long time.
In a Strong Uptrend:
- RSI can stay above 70 for days, weeks, or even months
- If you sell just because RSI is "overbought," you might miss a huge rally
During a major Bitcoin bull run, RSI might stay above 70 for weeks as price climbs higher and higher. Selling at RSI 75 would have been a costly mistake.
In a Strong Downtrend:
- RSI can stay below 30 for extended periods
- If you buy just because RSI is "oversold," you might catch a falling knife
In an uptrend (price above 50/200 MA): Look for buying opportunities when RSI dips to 40-50 (pullback)
In a downtrend (price below 50/200 MA): Look for selling opportunities when RSI rises to 50-60 (bounce)
RSI Divergence: A Powerful Warning Signal
One of the most valuable uses of RSI is spotting divergences between price and momentum.
What is a divergence? When price and RSI move in opposite directions. This can warn that the current trend is losing strength.
↗️ Bullish Divergence
Potential Reversal Up
What it suggests: Selling momentum is weakening even though price is still falling. Could signal an upcoming reversal to the upside.
↘️ Bearish Divergence
Potential Reversal Down
What it suggests: Buying momentum is weakening even though price is still rising. Could signal an upcoming reversal to the downside.
Divergence alone is not a buy or sell signal. Wait for confirmation (like a bullish/bearish candle or break of support/resistance).
Why divergences matter: They're early warning signs that momentum is shifting. They tell you to be cautious and watch for confirmation.
How to Add RSI in TradingView
Now let's add RSI to your chart.
Click "Indicators"
At the top of the chart, click the "Indicators" button (fx icon)
Search for RSI
Type "RSI" or "Relative Strength Index" in the search box
Add to Chart
Click on "Relative Strength Index" to add it. RSI will appear in a separate panel below your price chart
Configure Settings (Optional)
Click the gear icon → Default is 14-period (keep this) → Overbought: 70, Oversold: 30 → Customize colors if desired
Save as Template
Save this as "Template B (Momentum)" so you can quickly load it later
You now have two templates:
Template A (Trend): Moving Averages
Template B (Momentum): RSI
Switch between them depending on what you're analyzing!
Practice Task
- Open TradingView and go to BTC/USD daily chart
- Add the RSI indicator (14-period, default settings)
- Is RSI currently above 50 or below 50?
- Has RSI been above 70 or below 30 recently?
- Can you spot any divergences (price making new highs/lows but RSI not confirming)?
- Switch to 1-hour chart. Notice how much faster RSI moves on shorter timeframes
- Save your setup as "Template B (Momentum)"
- Why should you never trade based on RSI levels alone?
- What does it mean when RSI stays above 70 for an extended period?
- How can you use RSI to avoid entering trades at exhausted momentum levels?