RSI signals, decoded: when the textbook lies
Why RSI(14) above 70 doesn't mean sell, why divergences fail in trending markets, and how to use RSI as a confirmation tool instead.
The textbook reading of RSI — overbought above 70, oversold below 30 — was developed for stocks in stable trend regimes. Applied naively to crypto, it produces a stream of false signals that bleed traders out during the strongest moves.
In a strong uptrend, RSI can sit pinned above 70 for weeks. Selling the first cross above 70 is one of the fastest ways to give back a position. The actionable RSI signal is not the absolute level — it is the failure swing: an RSI that prints a lower high while price prints a higher high, then breaks the prior RSI low. That sequence flags real momentum exhaustion.
Use RSI as a filter, not a trigger. Combine it with structure: only act on bearish divergences when they form near a clear resistance level. Only act on bullish divergences when they form near a clear support level. Without that structural anchor, divergences in crypto fail more often than they succeed.