Have you ever struggled to understand when to buy or sell in the stock market? Do you often see prices going up and down but don’t know the right time to enter or exit a trade?
If yes, then you need a simple yet effective tool that can help you make better decisions.
The RSI (Relative Strength Index) Indicator is one of the most widely used tools by traders. It helps you understand if the market is overbought (too high) or oversold (too low). This means it can help you spot potential reversals before they happen.
But there’s a problem. The traditional RSI is not always accurate. It sometimes gives signals too early or too late.
That’s why we have improved it!
We have added extra levels to make it more reliable. Plus, we have included divergence detection to help you identify stronger buying and selling signals.
Let’s break everything down in simple terms.
What is RSI and How Does It Work?
RSI (Relative Strength Index) is an indicator that helps traders understand if a stock or cryptocurrency is moving too high or too low.
Think of it like this:
- If RSI goes above 70, the market is overbought – this means the price may soon fall.
- If RSI goes below 30, the market is oversold – this means the price may soon rise.
But here’s the problem:
- Sometimes, the price continues going higher even after RSI reaches 70.
- Sometimes, the price keeps falling even after RSI reaches 30.
This can confuse traders. They might sell too early or buy too soon.
To solve this, we added two extra levels:
80 (Extreme Overbought) – If RSI reaches 80, the market is very high, and a drop is more likely.
20 (Extreme Oversold) – If RSI reaches 20, the market is very low, and a bounce is more likely.
These extra levels help avoid false signals and give more accurate trade opportunities.
What is Divergence and Why Is It Important?
Sometimes, the RSI indicator and the price do not move in the same direction.
This is called Divergence, and it can signal a strong reversal.
There are two types of divergence:
Bullish Divergence (Buy Signal)
- The price is making lower lows (keeps going down).
- But the RSI is making higher lows (going up).
- This means selling pressure is reducing, and the price may soon start going up.
Bearish Divergence (Sell Signal)
- The price is making higher highs (keeps going up).
- But the RSI is making lower highs (going down).
- This means buying pressure is reducing, and the price may soon start falling.
Divergence gives traders an early warning before a trend changes.
This feature is built into our RSI indicator so you can easily spot these opportunities.
How to Use This RSI Indicator in Trading?
When to Buy? (Bullish Setup)
RSI drops below 20 (strong oversold zone).
A bullish divergence appears (price goes lower, but RSI moves higher).
RSI crosses above 30 and keeps moving up.
The price starts rising – this confirms a trend reversal.
This is a strong buy signal, and traders can look for entry opportunities.
When to Sell? (Bearish Setup)
RSI goes above 80 (strong overbought zone).
A bearish divergence appears (price goes higher, but RSI moves lower).
RSI crosses below 70 and starts dropping.
The price starts falling – this confirms a trend reversal.
This is a strong sell signal, and traders can consider exiting their positions.
⚡ Why is This RSI Indicator Better?
This modified RSI indicator solves common problems of the traditional RSI.
✔ More Accurate Signals – The extra 80-20 bands help filter out weak signals.
✔ Early Trend Reversals – Divergence detection helps spot reversals before they happen.
✔ Customizable Moving Averages – You can choose different smoothing options (SMA, EMA, WMA, etc.) to make RSI even better.
✔ Alerts for Divergence – No need to check charts all the time. Get automatic alerts when a divergence appears.
How to Get This RSI Indicator?
This RSI with Extra Bands & Divergence is available for free on TradingView.
Click Here to Add It to Your Chart
Final Thoughts
If you have been struggling with wrong RSI signals, this improved version will change the way you trade.By using extra bands (80-20) and divergence detection, you can avoid false signals and trade with more confidence.This indicator works for stocks, forex, crypto, and even commodities. It is a must-have tool for traders who want to make better decisions.
Start using this RSI indicator today and take your trading to the next level!
Have questions? Need help? Drop a comment below!
