Relative Strength Index (RSI)

RSI measures the persistence of up closes against down closes. Near 100, recent gains dominate. Near 0, recent losses dominate. The midline is 50. The usual "overbought" line is 70 and "oversold" is 30. Those words are dangerous in a trend: a strong uptrend can sit above 70 for a long time, and that is strength, not a short signal.

Wilder's smoothing means one spike does not reset the indicator. Divergence, a new price high with a lower RSI high, says the gains are getting smaller relative to the losses. Divergence is a warning. Price structure has to confirm it. Failure swings, an RSI rejection around 30 or 70 that then breaks its own prior RSI swing, were Wilder's own pattern.

A turn up from below 30, or a hold of 40 to 50 on a pullback in an uptrend, is the bullish use. Buying only because the number is 30, while lower lows continue, is how oversold markets get more oversold.

A turn down from above 70, or a failure at 50 to 60 in a downtrend, is the bearish use. Shorting only because the number is 70 in a bull market fights the trend the indicator is measuring.

Using one threshold for every market. A 14-period RSI on a five-minute chart hits 30 and 70 constantly. On a weekly chart it rarely does. Also treating divergence as a reversal by itself.

RSI has no price target and no volume. It will look "wrong" at every climax, because climaxes are exactly when gains dominate. Pair it with structure.