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| Srock Market | Day 9 |
RSI (Relative Strength Index)
Most beginners use RSI incorrectly.
They see:
RSI = 70 → Sell
RSI = 30 → Buy
Then they wonder why they lose money.
Let's learn how RSI really works.
What is RSI?
RSI measures the strength and momentum of a price move.
It ranges from:
0 ---------------- 100
Most traders use:
70 = Overbought
30 = Oversold
The standard RSI period is 14.
The concept is commonly represented as:
What Does RSI Actually Tell Us?
RSI does NOT tell you:
❌ "Price will definitely fall."
❌ "Price will definitely rise."
RSI tells you:
✅ How strong recent buying or selling has been.
Overbought Zone
When:
RSI > 70
Conceptually:
Many traders call this "overbought."
But here's the important part:
Overbought does NOT mean sell.
In a strong uptrend, RSI can remain above 70 for weeks.
Strong stocks often stay strong.
Oversold Zone
When:
RSI < 30
Conceptually:
Many traders call this "oversold."
But:
Oversold does NOT mean buy.
Weak stocks can remain weak for a long time.
Beginner Mistake #1
Buying only because RSI is below 30.
Example:
Stock:
₹500 → ₹400 → ₹300 → ₹200
RSI = 20
Many beginners buy.
Stock falls to ₹150.
RSI alone was not enough.
How Professionals Use RSI
They first check:
Trend
Support
Volume
Price Action
Then RSI becomes a supporting tool.
Not the main decision-maker.
RSI in an Uptrend
Strong bullish stocks often:
Stay above 50
Bounce from 40–50
Frequently move toward 70
This is healthy behavior.
RSI in a Downtrend
Weak stocks often:
Stay below 50
Struggle near 50–60
Frequently drops toward 30
The 50 Level (Very Important)
Many professionals pay more attention to:
RSI = 50
Conceptually:
Rather than only 70 and 30.
Above 50
Bullish momentum generally stronger.
Below 50
Bearish momentum generally stronger.
RSI Divergence
This is where RSI becomes powerful.
Bullish Divergence
Price makes:
Lower Low
But RSI makes:
Higher Low
Example:
Price:
₹100 → ₹90
RSI:
25 → 35
Selling momentum is weakening.
Possible reversal warning.
Bearish Divergence
Price makes:
Higher High
But RSI makes:
Lower High
Example:
Price:
₹100 → ₹120
RSI:
80 → 70
Buying momentum is weakening.
Possible reversal warning.
Important Rule
Divergence is a warning.
Not an automatic buy/sell signal.
Always wait for:
Trend confirmation
Support/Resistance
Candlestick confirmation
RSI + Support = Better Setup
Example:
Support = ₹500
Price falls to support
RSI near 30
Hammer candle forms
Volume increases
This is much stronger than RSI alone.
RSI + Trend
Best Use
Buy strong stocks during pullbacks.
Example:
Uptrend
RSI cools from 75 to 45
Price reaches support
Bullish candle forms
This is often better than buying a weak stock with an RSI 20.
RSI Cheat Sheet
RSI Above 70
Strong momentum
Not automatically bearish
RSI Below 30
Weak momentum
Not automatically bullish
RSI Above 50
Bullish bias
RSI Below 50
Bearish bias
Divergence
Potential reversal warning
Needs confirmation
Beginner Chart Setup
For now:
Candlesticks
Support & Resistance
Volume
20 EMA
50 EMA
RSI (14)
That's more than enough.
Professional Trading Process
When analyzing a stock:
Step 1
Trend
Step 2
Support & Resistance
Step 3
Volume
Step 4
EMA
Step 5
RSI
Notice:
RSI is the fifth step, not the first.
Homework
Open a stock chart and answer:
RSI value?
Above or below 50?
Above 70 or below 30?
Trend?
Is RSI supporting the trend or contradicting it?
Send me the chart, and I'll explain it like a professional swing trader.
Next Lesson: Chart Patterns
You'll learn:
Double Top
Double Bottom
Head & Shoulders
Inverse Head & Shoulders
Cup & Handle
Triangles
These patterns help identify breakouts, reversals, and trend continuation setups. 📈
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