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RSI Overbought/Oversold (Impulse Reversal)

Setup & Indicator

  • RSI: Period 14, Levels: 30 (oversold), 70 (overbought)
  • Timeframe: M15–H1 for swing and day trading
  • Confirmation: Bullish/bearish candlestick pattern (e.g. Hammer, Shooting Star)

Entry

  • Long: RSI drops below 30, forms a divergence (e.g. rising RSI lows vs. falling price lows) and turns back above 30.
  • Short: RSI exceeds 70, confirmed by a reversal candle, and falls back below 70.

Exit

  • Stop-Loss: 5–10 pips outside the last local low/high
  • Take-Profit: 50% of the stop distance (conservative) or RSI returning to the neutral zone (40–60)

Risk Management

  • Only trade in clear sideways markets or slowly trending phases
  • Maximum 1% risk per trade, otherwise skip the setup

 

Example chart: RSI Overbought/Oversold Impulse Reversal
Example chart: RSI Impulse Reversal Setup

 

  • Upper panel (Price): A simulated price line with markers for long (▲) and short (▼) entries.
  • Lower panel (RSI 14): The RSI with the levels 30 (oversold) and 70 (overbought).
    • Long signal: RSI falls below 30 and then crosses back upward.
    • Short signal: RSI rises above 70 and then crosses back downward.

This allows you to visually confirm the entry before adding a candlestick reversal formation as confirmation.