RSI is similar to Stochastic in that it identifies overbought and oversold conditions in the market.
They also scaled it from 0 to 100.
Typically, readings of 30 or lower indicate oversold market conditions and an increase in the possibility of price strengthening (going up).
Some traders interpret an oversold currency pair as an indication that the falling trend is likely to reverse.
This is an opportunity to buy.
Readings of 70 or higher indicate overbought conditions and an increase in the possibility of price weakening (going down).
Some traders interpret an overbought currency pair as an indication that the rising trend is likely to reverse,
This is an opportunity to sell.
Crossovers
In addition to the overbought and oversold indicators mentioned above, traders who use the Relative Strength Index (RSI) indicator also look for centerline crossovers.
A movement from below the centerline (50) to above indicates a rising trend.
A rising centerline crossover occurs when the RSI value crosses ABOVE the 50 line on the scale, moving towards the 70 line.
This indicates the market trend is increasing in strength,
It is seen as a bullish signal until the RSI approaches the 70 line.
A movement from above the centerline (50) to below indicates a falling trend.
A falling centerline crossover occurs when the RSI value crosses BELOW the 50 line on the scale, moving towards the 30 line.
This indicates the market trend is weakening in strength.
It is seen as a bearish signal until the RSI approaches the 30 line.
