12. RSI and momentum
Momentum is the speed of a price move. A car going from 0 to 60 in 5 seconds has more momentum than one taking 20 seconds – even if both reach 60.
In markets, momentum often changes before price changes direction. A rally that is slowing down tends to lose speed before it actually turns. That is why traders watch momentum indicators.
12.1 RSI – Relative Strength Index
RSI was created by J. Welles Wilder and published in his 1978 book New Concepts in Technical Trading Systems. It compares the size of recent up-moves with recent down-moves and gives a number between 0 and 100.
- RSI near 100 = recent moves were mostly up, and strong.
- RSI near 0 = recent moves were mostly down, and strong.
- The default setting is 14 periods.
Common zones:
- Above 70 – "overbought": price has risen fast.
- Below 30 – "oversold": price has fallen fast.
Overbought does not mean "sell now", and oversold does not mean "buy now". In a strong uptrend, RSI can stay above 70 for weeks while price keeps climbing. Selling just because RSI is high means fighting a strong trend.
Better reading: in an uptrend, RSI tends to stay between about 40 and 80. In a downtrend, it tends to stay between about 20 and 60. RSI shows strength. Use it to confirm the trend, not to fight it.
12.2 Divergence – when price and momentum disagree
Bearish divergence: price makes a higher high, but RSI makes a lower high. The new high was reached with less force. A warning that buyers are tiring.
Bullish divergence: price makes a lower low, but RSI makes a higher low. Sellers are losing force.
Divergence is a warning light, not a trading signal by itself. Many divergences appear and the trend just continues. Combine it with structure (a lower high, a broken trendline) and levels.
A runner sprints the first lap of a race at full speed. On the second lap, he is still ahead, but slower. On the third lap, still ahead, even slower. He has not lost yet – but you can see it coming.
That is bearish divergence: still making new highs, but with less and less energy.
RSI mera favourite confirmation tool hai, but never my only reason to trade. Price and levels first, RSI second. Agar RSI aur price alag baat kar rahe hain, toh price ki suno – but stay alert.
High RSI in a trend shows strength. Overbought is not a sell signal by itself.
Higher price high with a lower RSI high shows the move is losing force – bearish divergence.
- Momentum is the speed of a move; it often fades before price turns.
- RSI (Wilder, 1978) ranges from 0 to 100. Above 70 = strong rise, below 30 = strong fall.
- Overbought/oversold are not buy/sell signals. In trends, RSI stays in a range that confirms the trend.
- Divergence is an early warning. Combine it with price structure and levels.
- Ek line mein: RSI 70 ke upar hai matlab taaqat hai, bechne ka signal nahi – price pehle, RSI baad mein.