What occurs when the RSI is above 70?

When the relative strength index (RSI) is above 70, it is generally interpreted as an indication that an asset is becoming overbought. In this context, an overbought condition suggests that the price of the asset may have risen too quickly and could be due for a correction or pullback. As such, this is often considered a sell signal, prompting traders or investors to take profits or reduce their positions.

In technical analysis, the RSI is a momentum oscillator that measures the speed and change of price movements. Values above 70 indicate that the asset has been performing exceedingly well relative to its recent performance, signaling a potential reversal or slowdown in price momentum. Investors and traders view this as a critical point because it warns of an upcoming decline, making it a prudent time to consider selling or reducing exposure to avoid losses in the event of a market correction.

Understanding the implications of RSI readings is vital for effective investment and trading decisions, particularly in volatile markets where price movements can be rapid and significant. This insight can help investors capitalize on trends while mitigating risks associated with market fluctuations.