Recently, I noticed many beginners asking how to use RSI, so I decided to organize some of my insights and share them with everyone.

RSI stands for Relative Strength Index, which essentially uses a value from 0 to 100 to measure the strength of upward and downward movements over a period of time. The closer the value is to 100, the stronger the upward momentum; the closer to 0, the more dominant the downward pressure.

Many people initially use RSI to identify overbought and oversold conditions, which is indeed the most straightforward application. When RSI exceeds 70, the market is usually overly optimistic, indicating a risk of pullback; below 30, it may be overly pessimistic, increasing the chance of a reversal. But a special reminder here: overbought and oversold only represent short-term overreactions, not 100% buy or sell signals.

The calculation of RSI is actually simple. The core formula is RSI equals 100 minus 100 divided by 1 plus the RS value. In simple terms, first calculate the average gains and average losses, then find their ratio, and finally plug it into the formula to get a value between 0 and 100. Most trading software defaults to using 14 candles for the calculation, and this setting strikes a good balance between accuracy and noise filtering for short- to medium-term trading.

However, what I want to emphasize here is that the choice of RSI parameters can significantly impact your trading results. If you're a short-term trader, you might try RSI 6, which makes the indicator respond very quickly, triggering overbought or oversold signals at the slightest market movement. The downside is that it produces more false signals, so it needs to be combined with other filters to be effective. Conversely, if you're a long-term investor, RSI 24 might be more suitable, as the indicator becomes more sluggish and less affected by short-term fluctuations, making it better for analyzing daily or weekly trends. The default RSI 14 is a compromise, suitable for swing traders with medium to long-term horizons.

Besides overbought and oversold conditions, I personally often use RSI divergence to judge whether the momentum can support continued price increases or decreases. Divergence occurs when the price makes a new high but RSI does not, or the price makes a new low but RSI does not. Bearish divergence usually indicates weakening upward momentum and potential reversal, while bullish divergence suggests declining downward momentum and possible rebound. TradingView has an automatic divergence detection feature, which is quite convenient to use.

Honestly, RSI is a very beginner-friendly indicator, but because it’s so easy to use, many people tend to fall into traps. The most common mistake is seeing RSI above 70 in a strong trending market and rushing to short, only for the price to continue soaring and push RSI to extreme levels of 80 or 90. Also, pay attention to the timeframes: oversold signals on the hourly chart might be suppressed by the bearish trend on the daily chart, so blindly entering trades in such cases can lead to losses.

My advice is to find RSI parameters that suit your trading style, and then combine it with MACD, moving averages, or candlestick patterns. Never rely solely on RSI signals to enter a trade. RSI is just a tool to help you judge whether the market is overreacting; it’s not a foolproof trading system. Combining multiple indicators is the key to long-term, stable trading strategies, which is especially important for beginners.