=When a bull rally starts, price increases sharply. RSI follows too.
A stage comes when RSI hits the overbought zone.
Will the price stop rising now?
Not necessarily.
Price is not in the service of RSI.
Overbought RSI only indicates the increasing pressure on the price to slow down.
Just as the car doesn't stop the second we start pressing our foot against the brakes. It keeps moving for some more distance depending upon its momentum.
Just like a pendulum doesn't stop the moment it crosses the centre-point!
So, the price can keep rising even when rsi has hit the speedbreaker of 80-90-95-100.
So, what does rsi do in such a situation?
Cross 100?
It can't.
So it keeps retreating somewhat and keep rising again and again!
I call this banging its head in the overbought wall again and again.
A stage comes when RSI starts diverging, i.e. it starts falling while the price is still rising.
Finally, the price slows down and stops rising. And then it is all set to fall!
This is the time when I say "RSI has exhausted,tired!"
This point is confirmed by a "sell" signal by Williams%R or hints of trend reversal in MACD!
Same is true in a bear rally.
I am sharing some graphs below where RSI exhaustion during an up or down rally are marked with dark thick lines.
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