The RSI Indicator is short for Relative Strength Index. It is a commonly used type of momentum indicator for technical analysis charts which shows you overbought and oversold levels of a price. it performs a calculation on the amount of “up” closes divided by the amount of “down” closes over a set period of days, weeks or hours (depending on the type of trader you are). Take a look at this page here to see how it is calculated in full.
Many people looks for extremes in the RSI near zero or 100 to signal overbought or oversold conditions. However from experience we have seen price momentum continue much higher or lower whilst RSI is at these levels. It’s not recommended to use this indicator to signal turning points.
One useful way that traders utilize this chart indicator is by watching for a cross of the fifty line. By adding a horizontal line through the indicator window, set to 50, you can see when momentum is changing from up to down in a given price. Quite often (in longer time frames) when the RSI crosses fifty price is also starting to turn and gather momentum in the same direction. Using this idea, many wise traders can piggy back into dips on a trending price.
Taking the above idea further, define a clear cut trend in a price. Maybe use a weekly or daily chart to find a clear series of higher highs, higher lows or lower highs, lower lows. Try using a trend line to find a couple of points in the price which show a certain trend.
Once you have found a trend wait for a retrace in the price. Watch the RSI carefully. A new leg in the trend could well be starting when RSI comes from the extreme and crosses over the fifty horizontal line. As always back test the idea first before trading it.