The topic of RSI overbought is something many people talk about, but not everyone truly understands how to use it effectively.

The common option I see is that when the price keeps moving upward, many traders rush to buy without thinking, and then the price reverses downward. The problem is they don’t know what situation the price is in—whether it’s overbought or not. That’s where RSI comes in to help.

RSI overbought is a situation where the price has been bought excessively. This indicator tells us that the market is in an overbought condition. Generally, when RSI exceeds 70, it’s considered in the overbought zone, meaning buying momentum is weakening and a correction might occur.

Conversely, oversold is the opposite. When RSI drops below 30, it indicates the price has been sold excessively. The market is in an oversold condition, and there’s a chance the price will bounce back up.

What I’ve observed is that RSI overbought isn’t a signal to sell immediately. You need confirmation, such as the price crossing below the MA5 or MA25 line, before entering. Many miss this point and sell right at the overbought level, losing money.

There’s another indicator that works similarly: the Stochastic Oscillator. When it exceeds 80, it’s overbought; below 20, it’s oversold. The difference is that Stochastic looks at where the closing price is within the high-low range, while RSI measures the strength of the trend.

I see that successful traders often use RSI overbought and oversold in conjunction with trend analysis. If the uptrend is strong, it’s not advisable to short at the overbought point. Instead, buy at the oversold level.

There are two trading methods that work well. The first is Mean Reversion, which assumes the price will return to the average. When RSI becomes overbought or oversold, the price tends to pull back. This works well in sideways markets without a strong trend.

The second is Divergence, a strategy for catching trend reversals. For example, if the price makes a new high but RSI doesn’t, it indicates weakening buying pressure and could signal a reversal.

A real example: when trading USDJPY on a 2-hour chart, if the price moves above the MA200 line and starts to fluctuate, I set RSI overbought at 75 instead of 70 because of the strong uptrend. I buy at the oversold level (35) and close when the price reaches MA25. This method yields consistent profits.

But remember, RSI overbought is just a tool. It’s not perfect and can give false signals in strongly trending markets because the price may stay overbought for a long time. Always use it together with other tools.

In summary, RSI overbought indicates the price has been bought excessively, but it’s not a signal to sell immediately. Confirmation is necessary. Use it along with trend analysis and other indicators for better results. Most importantly, understand the market situation—if the trend is strong, overbought might not be a sell signal at all.