RSI overbought / oversold
Mean reversion · Difficulty: Beginner
The idea
The Relative Strength Index (RSI) measures how stretched a recent move is on a 0 to 100 scale. Readings under 30 are called oversold and above 70 overbought. The idea is that stretched moves in a range often snap back.
Indicators and settings
RSI 14 with 30 and 70 lines. Add EMA 50 so you know the bigger trend.
Entry rule
Consider a long only after RSI has dipped below 30 and then turns back above 30, ideally while price is still above a rising 50 EMA or inside a clear range.
Exit rule
Take profit as RSI reaches the 50 to 70 zone, or at the middle of the range. Exit if price makes a new low after your entry.
Stop-loss and risk rule
Stop just below the recent low. Keep size small: oversold can stay oversold.
Best conditions
Sideways ranges and dips inside uptrends.
Pitfalls
- In strong trends RSI can stay above 70 or below 30 for a long time, so fading it loses money.
- A single reading is not a signal by itself: look for the turn and for the trend context.
Try it on the desk → Position-size calculator All strategies
Illustration only; ignores slippage, tax and most costs. Not financial advice.