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Figure 16-3
Wilder's RSI Chart |
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as Andrew Cardwell Jr. showed. What most traders do not realize is that the RSI range effectively shifts in an up trend so that 80 becomes overbought. This necessitates that the support level also shift upward. Inversely, in a bear market the oversold level shifts down to 20, with the resistance level in a bear market also shifting downward. |
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Up-trending markets typically find support at the 40 level with effective resistance at the 80 level. Down-trending markets find resistance at 60 with effective support at the 20 level. Often one of the first indications that the trend has shifted from a bear trend to a possible bull market is that the RSI, which previously was respecting the 60 level, will rally up to 70 or higher. When the inevitable decline arrives, the RSI will respect the 40 level, and then rally. |
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A range shift occurs when the RSI value violates a level that had been acting as support or resistance. The RSI then proceeds to start respecting a new support or resistance level. In other words, if the market has been |
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