When the RSI exceeds 70 and falls below 30, the market is said to be overbought, and vice versa. These conventional levels can also be changed to better suit security if necessary. For example, if security is consistently approaching the overbought level of 70, you might want to raise this level to 80.
The RSI may be overbought or oversold for an extended period of time during strong bullish or bearish trends.
Furthermore, the RSI frequently generates chart patterns such as double tops and bottoms and trend lines that may not be visible on the underlying price chart. Keep an eye on the RSI for signs of support or resistance.
During an uptrend or bull market, the RSI typically remains in the 40 to 90 range, with the 40-50 region serving as support. During a decline or bear market, the RSI typically oscillates between 10 and 60, with the 50-60 area acting as resistance. These ranges will fluctuate according to the RSI parameters and the strength of the underlying trend for the securities or market.
If the underlying prices reach a new high or low that is not supported by the RSI, this divergence may indicate a price reversal. If the RSI makes a lower high followed by a downside move below a prior low, the top swing has failed. A bottom swing failure occurs when the RSI makes a higher low and then moves upward above a previous high.