RSI Indicator Overbought & Oversold Levels

RSI indicator values of above 70 are considered to be overbought: stock traders consider points above the 70 level as market tops & good points for taking profits.

RSI indicator values of below 30 are considered to be oversold: stock traders consider points below the 30 level as market bottoms and good points for taking profits.

These overbought and oversold stock indices levels should be confirmed by RSI center line crossovers stock signals. If these regions give a market top or bottom, this stock signal should be confirmed with RSI center line crossover stock signal. This is because these overbought and oversold levels are prone to giving whipsaws in the market.

In the stock example illustrated below, when the RSI hit 70, it showed that the stock indices was overbought, and this could be considered a trading signal that the trend could reverse.

The stock chart then reversed the stock trend after a short while and started to move downwards, until it got to the oversold levels. This was considered a stock market bottom after which the chart started to move upwards again.

Overbought & Oversold Levels - RSI Stock Indices Strategies

Over Extended Overbought and Oversold Levels

When the stock market is trending strongly upwards or downwards the RSI 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 market tops and stock market bottoms because the RSI 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 stock indices whipsaws and it is best to confirm these stock signals using RSI center-line cross-over strategy.

Over Extended Overbought and Oversold Levels - RSI Indicator Method