I happen to have a friend asking me recently how to use RSI, so I decided to organize my years of practical experience and share it with everyone. Honestly, RSI is really a fundamental indicator for technical analysis, but many people only learn the surface and think they know how to use it, only to suffer losses in the market.

First, let's talk about the basic logic of RSI. RSI stands for Relative Strength Index, and its core idea is to compare the magnitude of price increases and decreases over a period of time to assess the relative strength of buyers and sellers in the market. Its calculation isn't complicated; it involves dividing the average upward price change by the average downward price change, then applying a formula to get a value between 0 and 100. Most people default to a 14-day period, but that's not absolute.

The overbought and oversold zones of RSI are the most watched. When RSI exceeds 70, it suggests the market might be overheated; below 30, it indicates it might be oversold. But there's a trap many beginners fall into—during strong trending markets, RSI tends to become less responsive. What does RSI becoming less responsive mean? It means the indicator gets stuck in the overbought or oversold zone and loses sensitivity to price changes. I've seen Bitcoin rise from $70,000 to $100,000 with RSI hovering above 80, and many people exited based on overbought signals, only for the market to keep rising. That's a classic case of RSI becoming dulled by the trend.

I later found that the most effective way to deal with RSI dulling is not to rely on it alone. I usually combine trend lines, moving averages, and volume to get a clearer picture, which helps avoid false signals. Also, adjusting the RSI period can help; sometimes I set three RSI lines with periods of 6, 12, and 24 days to observe the strength across multiple timeframes.

Let's talk about RSI divergence, which I think is the most valuable application. Divergence occurs when the price makes a new high but RSI doesn't follow suit, or the price hits a new low but RSI doesn't confirm. This asynchronous behavior often hints that a trend reversal may be imminent. But be cautious—if RSI crosses the 50 midline repeatedly during divergence formation, it indicates the market is still oscillating and the divergence signal becomes less reliable.

When RSI crosses above the 50 midline, bullish momentum dominates; when it drops below 50, bearish momentum takes over. I usually treat 50 as the dividing line between bulls and bears, confirming trend reversals with divergence and other indicators. Another trick is to watch for crossovers between multiple RSI lines; when a short-term RSI crosses above a long-term RSI, forming a golden cross, it's often a good buy signal; the opposite indicates a sell.

Finally, I want to emphasize that RSI becoming less responsive doesn't mean the indicator is completely invalid. It just requires more caution in extreme market conditions. My recommendations are: 1. Combine trend analysis and don't rely solely on RSI; 2. Use multiple timeframes of RSI for cross-verification; 3. Set strict stop-losses and manage risk carefully during dulling periods. Technical analysis doesn't have an absolute holy grail, and RSI is just one tool in the toolbox. The real skill lies in how you integrate it with other tools and risk management strategies.