Does RSI above 70 mean sell?

No. It shows up periods dominating; in a strong trend price can hold above 70 for a long time. It's a description, not an order.

Is divergence reliable?

It hints at fading momentum, more valuable combined with other context, but not a certain signal.

Should I pick RSI or the stochastic?

Both measure momentum slightly differently; understanding one deeply usually beats using both redundantly.

Momentum Indicators | 2AiTrading

What momentum indicators are

These are indicators that measure the speed and strength of price movement, usually oscillating within a fixed band. They help show when a move is strengthening or weakening, and when price has moved too fast relative to recently. This group includes the relative strength index, the stochastic, and a few other oscillators.

Relative Strength Index (RSI)

RSI compares the size of recent up periods with down periods, producing a number oscillating from 0 to 100. The calculation using Wilder's smoothing is as follows. First, for the initial N periods, take the average of the gains and the average of the losses. From the next period on, each new average equals the prior average times N minus 1, plus the current value, divided by N. The relative strength equals the average gain divided by the average loss. Finally, RSI equals 100 minus the quotient of 100 divided by one plus the relative strength.

Neutral reading: a high value shows up periods dominating over the lookback, a low value shows down periods dominating. Levels like 70 and 30 are often mentioned as zones where price has moved strongly one way, but this describes a state, not a buy or sell order.

Stochastic

The stochastic compares the current close with the high-low range of recent periods, producing a number also oscillating from 0 to 100. The idea is that in an uptrend price tends to close near the top of the range, and in a downtrend near the bottom. It usually has two lines, a main one and a smoothed version of it.

Some other momentum indicators

The commodity channel index measures price's deviation from its average. Williams %R is an oscillator similar to the stochastic but on an inverted scale. Rate of change measures the percentage price change over a number of periods.

Divergence

Divergence is when price and a momentum indicator move in opposite directions — for example, price makes a higher high but the indicator a lower high. It's seen as a sign momentum is weakening even as price continues, but it's a probabilistic hint, not a certain reversal signal.

Why it matters and how to apply it

Momentum indicators reveal the internal health of a move: price rising with strong momentum differs from price rising while running out of breath. Use them as an extra information layer on top of trend and price zones, especially to spot when force is fading. Avoid mechanical use like buy-or-sell-on-touching-a-level, because in a strong trend an indicator can stay at an extreme for a long time.

Common mistakes

Mechanically trading each time the indicator touches 70 or 30, ignoring trend context.
Forgetting that in a strong trend a momentum indicator can stay at an extreme for a long time.
Treating divergence as a certain reversal signal rather than a weakening hint.
Using several momentum indicators at once when they nearly duplicate each other.

FAQ

Does RSI above 70 mean sell? No. It shows up periods dominating; in a strong trend price can hold above 70 for a long time. It's a description, not an order.
Is divergence reliable? It hints at fading momentum, more valuable combined with other context, but not a certain signal.
Should I pick RSI or the stochastic? Both measure momentum slightly differently; understanding one deeply usually beats using both redundantly.

Checklist

☐ Am I reading the momentum indicator in trend context, or in isolation?
☐ Am I trading mechanically just because a level was touched?
☐ If I see divergence, am I treating it as a probabilistic hint, not a certainty?