Does RSI control the price movement? I know it’s price which drives the RSI but for an RSI continuously increasing say from 85 to 90 with continuous increase in price without any pull back, then
Doesn’t it mean that price must soon pull back/correct since RSI cant go beyond 100, thereby decreasing the RSI so that we can have another bullish rally.
To summarise I think pull back is a must if RSI is at very high values(90-95)
Please help to understand.
RSI can stay high for a long period of time, even for months. So High RSI doesn’t guarantee that the price will fall.
RSI don’t control the price directly. Although there are two factors why a stock with HIGH RSI may come down.
Human psychology: People start profit booking after a good bull rally. That is why most stocks move in cycles and on every time frame.
Self-fulfilling prophecy: It means that if a lot of people make decisions based on RSI and also believes in similar rules like sell if RSI is above 80, then if RSI goes high everyone starts selling. And price starts to come down, then it strengthens the first belief that price comes down if RSI is high. Google self-fulfilling prophecy.
RSI is just another indicator. All these are derivatives.
Check out the formula for RSI and it will give you the answer.
Btw, you’ll soon realise that RSI is NOT a reliable indicator.
Hey @ritvik_rathore ,
As Economist John Maynard Keynes once famously said, “The markets can remain irrational longer than we can remain solvent.” (Same thing applies to RSI as well)
We have a detailed chapter covered regarding RSI on our learning platform Varsity. Please read here to know about it.
Better you try RSI divergence along with trend line.