What is rsi and how to use it ?

RSI stands for **Relative Strength Index**, which is a momentum oscillator used in technical analysis to measure the speed and change of price movements. It is primarily used to identify whether an asset is overbought or oversold, helping traders make decisions about potential buy or sell opportunities.

### Key Points About RSI:
- **Scale**: RSI ranges from 0 to 100.
- **Overbought and Oversold Levels**:
- **Overbought**: When RSI is above 70, the asset is considered overbought, meaning it may be overvalued and could see a price reversal downward.
- **Oversold**: When RSI is below 30, the asset is considered oversold, meaning it might be undervalued and could see a price reversal upward.

### How to Use RSI:
1. **Identifying Overbought/Oversold Conditions**:
- **Overbought (RSI > 70)**: This suggests the asset may have been overbought, and a pullback or price reversal might occur. Traders might consider selling or shorting.
- **Oversold (RSI < 30)**: This suggests the asset may be oversold, and a rebound or price reversal might happen. Traders might consider buying.

2. **RSI Divergence**:
- **Bullish Divergence**: When the price makes new lows, but RSI forms higher lows, this can indicate a potential upward reversal or buying opportunity.
- **Bearish Divergence**: When the price makes new highs, but RSI forms lower highs, this may signal a potential downward reversal or selling opportunity.

3. **RSI and Trend Strength**:
- RSI can also help assess trend strength. For example, during a strong uptrend, the RSI might stay above 40-50 and consistently test the overbought zone. Similarly, in a strong downtrend, the RSI may hover below 60 and frequently test oversold conditions.

4. **RSI and Trend Reversals**:
- When the RSI crosses back above the 30 level (from below), it can signal the start of an uptrend (bullish reversal).
- When the RSI crosses back below the 70 level (from above), it can signal the start of a downtrend (bearish reversal).

### Practical Example of Using RSI:
- **Example 1: Overbought Condition**:
- Let's say a stock has an RSI of 75. This indicates it’s overbought, suggesting that a price pullback or correction might be on the horizon. Traders might consider selling or taking profits at this point.

- **Example 2: Oversold Condition**:
- If the RSI of a stock is 25, it indicates the stock is oversold and could be undervalued. Traders might look for a buying opportunity, anticipating that the price may rise.

### Limitations:
- RSI is more useful in ranging (sideways) markets than in trending markets. In strong trends, RSI may stay overbought or oversold for extended periods without reversing.
- RSI signals should ideally be combined with other indicators or chart patterns for confirmation.