EP17 Free trading lesson · Indicators

Find Entries with RSI: 2 Practical Techniques

Learn RSI with the 14 setting and 70/30 levels, then find entries with overbought/oversold and RSI divergence, both classic and hidden, picking the side that matches the trend.

By 1TRADER7 min readUpdated 16 Oct 2026

TECHNIQUE 1

Above 70 · below 30

Overbought / Oversold

Classic · Hidden

Trend · zone · confirmation

Note: RSI helps you gauge buying and selling pressure; it doesn’t pinpoint reversals every time. Always use it with the trend, support and resistance, and a stop loss. This content is for education only and is not investment advice.

Quick summary before you read

RSI measures buying and selling pressure from 0–100, with a standard setting of 14 candles and 70/30 levels
Technique 1: overbought (above 70) consider selling · oversold (below 30) consider buying, choosing the side that matches the trend
Technique 2: RSI divergence, where price and RSI move in opposite directions, with 2 classic and 2 hidden types
RSI helps with timing; always use it with the trend, support and resistance, and a stop loss

Previous lessons: EP1 Trends · EP2 Sideways markets · EP3 Trend reversals · EP4 Speed line · EP5 Demand & supply zones · EP6 FVG · EP7 Divergence · EP8 FIBO · EP9 Money management · EP10 Free backtesting · EP11 Stochastic · EP12 Bollinger Bands · EP13 Starting capital · EP14 Sniper (All-in) · EP15 Free TradingView · EP16 Zone indicator

01RSI

What is RSI, and what is it for?

The Relative Strength Index (RSI) is an indicator that measures buying and selling pressure, popular in Forex, gold, stocks and crypto. It shows when price is overbought or oversold, and helps spot signs that price may pause or reverse.

Created by: J. Welles Wilder, in his 1978 book
Range: 0–100; higher means more buying pressure, lower means more selling pressure
Default: Calculated from the last 14 candles
Formula: RSI = 100 − 100 ÷ (1 + RS), where RS = average gain ÷ average loss
Key levels: 70 overbought · 50 midline · 30 oversold

RSI chart with 70 overbought, 50 and 30 oversold levels: above 70 means too much buying, below 30 too much selling — RSI above 70 = overbought · below 30 = oversold · tap to enlarge

14 candlesDefault RSI setting

70+Overbought: too much buying

30−Oversold: too much selling

50 midlineAbove 50, buyers have the edge

This lesson covers 2 main techniques for finding entries with RSI: entering on overbought/oversold and entering on RSI divergence, which builds on EP7 Divergence.

02Setting

RSI settings in TradingView and MT4

TradingView

Click the indicators button – on the top toolbar of the chart (see EP15)

Search for RSI – choose Relative Strength Index

Keep the defaults – Length 14 and the 70 / 50 / 30 levels are already set

MT4

Insert menu – Indicators > Oscillators > Relative Strength Index

Set the period – enter 14 and choose Apply to: Close

Levels tab – check that 70 and 30 are there, then click OK

Beginners should start with the standard 14 and 70/30. Some traders switch to 80/20 in strong trends to cut false signals, but you get fewer signals. If you change it, backtest it before trading live.

03Technique 1

Technique 1: enter on overbought / oversold

RSI above 70 · overbought

Buying pressure is getting too high, so price may pause or turn down

Consider selling – when RSI rises above 70 and starts turning down

Let the trend lead – if the trend is already down, an overbought signal has a better chance of winning

RSI below 30 · oversold

Selling pressure is getting too high, so price may pause or turn up

Consider buying – when RSI drops below 30 and starts turning up

Let the trend lead – if the trend is already up, an oversold signal has a better chance of winning

In a strong trend, RSI can stay overbought or oversold for a long time. Andrew Cardwell observed that RSI tends to swing between 40–80 in uptrends and 20–60 in downtrends, so in a downtrend RSI may not bounce to 70, and in an uptrend it may not dip to 30. Never trade against the trend just because RSI crossed a line.

04Technique 2

Technique 2: enter on RSI divergence

RSI divergence happens when price and RSI move in opposite directions, a sign that price may pause or reverse. Read the details in EP7 What is divergence.

1.1 Classic bullish: Price makes a lower low, but RSI makes a higher low → consider buying
1.2 Classic bearish: Price makes a higher high, but RSI makes a lower high → consider selling
2.1 Hidden bullish: Price makes a higher low, but RSI makes a lower low → consider buying
2.2 Hidden bearish: Price makes a lower high, but RSI makes a higher high → consider selling

1. Classic Divergence

RSI classic divergence: bullish, where price makes a lower low but RSI a higher low, and bearish, where price makes a higher high but RSI a lower high — Classic divergence: bullish and bearish pause/reversal · tap to enlarge

1.1 Bullish pause/reversal

Consider buying – price makes a lower low but RSI makes a higher low; let the trend lead to improve your odds

1.2 Bearish pause/reversal

Consider selling – price makes a higher high but RSI makes a lower high; let the trend lead to improve your odds

2. Hidden Divergence

RSI hidden divergence: bullish, where price makes a higher low but RSI a lower low, and bearish, where price makes a lower high but RSI a higher high — Hidden divergence: bullish and bearish pause/reversal · tap to enlarge

2.1 Bullish pause/reversal

Consider buying – price makes a higher low but RSI makes a lower low; often seen when price pulls back in an uptrend

2.2 Bearish pause/reversal

Consider selling – price makes a lower high but RSI makes a higher high; often seen when price bounces in a downtrend

Classic divergence often appears at the end of a trend, warning that momentum is fading. Hidden divergence often appears mid-trend, signalling that price may continue in the same direction after a pullback or bounce, so it suits trading with the trend.

05Checklist

5-step checklist before an RSI entry

Do it before every entry

Check the higher-timeframe trend – on H1 or H4 with trends and trendlines; focus on buys in uptrends and sells in downtrends

Wait for price to reach a zone – support/resistance, a demand/supply zone or FIBO (drawn automatically with EP16)

Check the RSI signal – oversold or bullish divergence at support · overbought or bearish divergence at resistance

Wait for a confirmation candle – a reversal candle closes, or RSI turns back

Set the SL, then size your lot – SL beyond the latest low/high; size your lot as in EP9

Buy-side example

Uptrend – price pulls back to support or a demand zone

RSI – falls near or below 30, or forms a hidden bullish divergence

Buy – after a confirmation candle, with the SL below the latest low and TP at the next resistance

Sell-side example

Downtrend – price bounces up to resistance or a supply zone

RSI – rises near or above 70, or forms a hidden bearish divergence

Sell – after a confirmation candle, with the SL above the latest high and TP at the next support

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06Limitations

RSI limitations and cautions

Common mistakes

Trading against a strong trend – RSI can stay above 70 or below 30 for a long time

Entering before the signal is complete – a divergence isn’t done until the second high or low is clearly formed

Using too small a timeframe – M1 gives lots of false signals

Trading during big news – price moves so hard that RSI stops working; check the economic calendar

Use it well

Use RSI to confirm, not to decide – trend and zones come first, RSI second

Watch the 50 line – above 50 buyers have the edge, below 50 sellers do

Compare with Stochastic – same ideas as EP11, but RSI swings more slowly

Backtest first – practise with the free backtesting sites or a demo account

07Summary

RSI signal summary

Signal	What RSI shows	Side	Use with
Overbought	RSI above 70	Consider selling	Downtrend + resistance
Oversold	RSI below 30	Consider buying	Uptrend + support
Classic bullish	Price lower low, RSI higher low	Consider buying	End of a downtrend + confirmation candle
Classic bearish	Price higher high, RSI lower high	Consider selling	End of an uptrend + confirmation candle
Hidden bullish	Price higher low, RSI lower low	Consider buying	An uptrend that is pulling back
Hidden bearish	Price lower high, RSI higher high	Consider selling	A downtrend that is bouncing

Summary of using RSI for entries: use overbought/oversold and RSI divergence together with the trend and support and resistance — Summary: use RSI with the trend and support and resistance · tap to enlarge

RSI is a very flexible tool: use both overbought/oversold and RSI divergence to catch signs that price may pause or reverse, but combine it with trend analysis and support and resistance to improve your odds and reduce risk.

08FAQ

FAQ about RSI

What RSI settings should I use?

The standard is 14 candles, as used by RSI’s creator J. Welles Wilder, with levels at 70 and 30. Both TradingView and MT4 use these by default. Beginners should keep them; some traders switch to 80/20 to reduce signals in strong trends.

Should I sell as soon as RSI goes above 70?

No. RSI above 70 only means buying pressure is very high. In a strong uptrend RSI can stay above 70 for a long time while price keeps rising. Check the trend and resistance, and wait for a confirmation candle before selling.

How is overbought/oversold different from divergence?

Overbought/oversold only looks at whether RSI is above 70 or below 30. Divergence compares the highs or lows of price with RSI moving in opposite directions, so it can show fading momentum earlier.

How are classic and hidden divergence used differently?

Classic divergence often appears at the end of a trend, warning that price may pause or reverse. Hidden divergence often appears when price pulls back within a trend, signalling that price may continue in the same direction.

Which timeframe is best for RSI?

It works on any timeframe, but small ones like M1–M5 give many false signals. Check the trend and zones on H1 or H4 first, then use RSI on M5–M15 to time your entry.

How is RSI different from Stochastic?

RSI compares average gains with average losses, while Stochastic compares the close with the recent high–low range. So Stochastic swings faster and gives more signals. The same overbought/oversold and divergence ideas apply to both.

Can I trade with RSI alone?

It’s not recommended. RSI is a timing aid; use it with the trend, support and resistance or zones, always set a stop loss and size your lot, and backtest before using real money.

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