Trade the RSI like a Pro

The speaker provides an explanation on how to trade the RSI, or relative strength index.  This technical oscillator fluctuates above and below the 0 line and indicates strength or weakness.  This indicator is best described as indicating the momentum of a particular stock.  The formula compares the size of recent gains against the size of its recent losses. 

70 is typically considered an extreme reading to the upside while 30 is considered an extreme reading to the downside.  There are several different ways traders use the RSI.  Traders will look to trade a reversal long when the RSI breaks 30.  Many traders will look for RSI divergences to setup to initiate a long or short position as well.  RSI divergences occur when prices continue to move higher but the RSI readings do not. 

Finally, traders sometimes use the centerline crossover technique which is less reliable than the other two.  A cross above the 50 line, it is considered to be a bullish sign while the opposite can be said when it crosses below the 50 line.