Chapter 7 · Technical analysis and timing
RSI and momentum
What overbought actually means, and the mistake almost everyone makes with it.
RSI compares the size of recent gains to recent losses on a 0–100 scale. Above 70 is conventionally called overbought, below 30 oversold.
The more useful reading is divergence: price makes a new high but RSI does not, suggesting the move was made with less force than the previous one. That is genuine information — though still not a signal by itself.
The four families
Pick at most one indicator per family, and only where you have a question it answers. Five momentum indicators agreeing is one opinion repeated, not five opinions confirming.
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