High or low Relative Strength Index – which is better?
Just because a stock is considered oversold or overbought by the RSI doesn’t always reflect reality. Especially in phases of strong trends, the RSI can remain in the overbought or oversold area for longer periods of time. In principle, the RSI indicator can be applied to almost all base values. However, the Relative Strength Index is an oscillator, which means that it is not well suited to markets that do not experience high volatility. This makes the RSI indicator more suitable for cryptocurrencies than for the stock market, for example.
Furthermore, neither a high nor a low RSI index can always be classified as negative or positive. However, those who use the RSI for trading can spot roughly expected trends and then trade put or call options accordingly. You can find more information on trading with warrants in our corresponding advice article.
In general, as an investor, you should not rely 100% on the Relative Strength Index or only trade shares based on it.
Our recommendation: Compare your calculated Relative Strength Index to past RSI indicators. Has price always followed the RSI metric, or have past trends lasted longer than expected?