There are 4 RSI trading signals that traders should be aware of when they place any trade. They have nothing to do with price being overbought or oversold. RSI (Relative Strength Index) was never designed with that in mind. Prices that push RSI to 70 or above are not necessarily overbought and prices that push RSI to below 30 are not necessarily oversold. If this is the way you are using RSI then you would be better off not using it because these signals would be leading you astray.
The 4 RSI trading signals are composed of two types: divergences and reversals. Most traders are very comfortable with finding divergences on their price charts. There are two divergences patterns, positive meaning a momentum force upward or bullish, and negative meaning a momentum force downward or bearish. They are commonly called positive divergence or bullish divergence, and negative divergence or bearish. Theoretically when you have a positive divergence price should move upward and vice versa for a negative divergence.
The second signal is less known and almost never considered. They are reversals and as with divergence there are two. A positive or bullish reversal pushes price up and a negative or bearish reversal pushes price down.
You may be wondering what the difference is as it sounds like they do the same thing. A positive divergence is signaled when RSI is higher on the chart but price is lower. However, a positive reversal is signaled when RSI is lower on the RSI chart but price is…