Track 05 · Charts & Applied Practice
Momentum with RSI
What the 0–100 oscillator actually measures, and why overbought does not mean sell.
RSI maps the speed of recent movement onto 0–100. Above 70 and below 30 are descriptions of an extended move, not verdicts.
- 1Stays overbought. In a strong trend RSI can sit above 70 for weeks while the stock keeps rising — exiting here misses the meat of it.
- 2Momentum fading. The more useful reading is divergence: a new price high paired with a weaker RSI high.
Illustrative. Stack the filters — trend, then momentum, then volume. No indicator stands alone.
What RSI measures
The Relative Strength Index compares the size of recent gains with recent losses over 14 periods and maps the result to 0–100. It measures the speed of movement rather than the quality of the business.
Above 70 is conventionally “overbought”, below 30 “oversold”: descriptions of an extended move, never verdicts.
Overbought does not mean sell
In a strong trend, RSI can stay above 70 for weeks while the stock keeps rising; exiting on the first overbought reading is a reliable way to miss the meat of a trend.
The more useful readings are the failures: momentum weakening while price makes a new high (bearish divergence), or momentum recovering after a shallow pullback.
- RSI > 70 in an uptrend: strength, often continuation.
- RSI < 30 in a downtrend: weakness, often continuation.
- New price high with a lower RSI high: momentum fading.
- Read RSI on the timeframe you actually hold on.
Use it with trend, never instead of it
A workable combination is the simplest one from the previous lesson: trend filter (price vs 200-day) plus momentum reading (RSI) plus volume confirmation.
Each layer rules out candidates the others would accept. No single indicator survives alone, and none of them is a trading signal, only evidence for a thesis you already built.
Three things to remember
- 01RSI measures the speed of recent price change on a 0–100 scale.
- 02Overbought can persist in a trend; divergence is the more informative signal.
- 03Stack indicators as filters: trend, then momentum, then volume.
Try it on live data
Tools on this site are for research and education. Nothing here is financial advice or a recommendation to buy or sell.