In Bull Markets the level is 70 and 40.

IN Bear Markets the level is 60 and 30

RSI moves into overbought and oversold zones

• Overbought and oversold levels cannot be used to buy and sell under all circumstances. When the RSI goes above 70, we say that it is overbought. This leads to the erroneous
conclusion that we should be selling the security. IF the RSI goes below 30, we say that it is oversold. This leads to the erroneous conclusion that we should be buying the
security.

• We should consider the upper and lower boundaries of 70 and 30 as ‘extreme zones’. When the RSI moves inside an extreme zone, we receive an alert that the security may
be ready for a buy or sell trade. But, the trade may or may not actually happen.

Low risk trades when RSI is in extreme zones
• The level of extreme zones changes in bull and bear markets. In general, in a bull market, the extreme zones are located at 70 and 40. In a bear market, the extreme zones are
located at 60 and 30.
• A zone shift in an indication of a change in trend. When the RSI shifts zones, this is one of the first indications that a change in trend is taking place.
• In a bear market, the RSI moves up during periods of bear allies. It usually fi nds resistance
around 60. Now, in one such rally, the RSI crosses 60 and finds resistance around 70. A zone shift has taken place. This is one of the first signs that the market may be shifting from a bearish to bullish environment.

In a bear market, look for these signs

• The RSI moves up during periods of bear rallies. It usually fi nds resistance around 60. Now, in one such rally, the RSI crosses 60 and finds resistance around 70. A zone shift has taken place. This is one of the first signs that the market may be shifting from a bearish to bullish environment.

• The RSI falls and finds support between 20 to 30. During a decline, the RSI falls but finds support around 40. This may be a sign that the market is changing from bearish to
bullish. This is also an example of zone shift.

Shift from Bear to Bull

In a bull market, look for these signs
• The RSI moves down during periods of declines decline. It usually finds support around 40. Now, in one such decline, the RSI crosses 40 and fi nds support around 30. A zone
shift has taken place. This is one of the first signs that the market may be shifting from a bullish to bearish environment.

• The RSI rallies and finds resistance around 70. During a rally, the RSI rises but finds resistance around 60. This may be a sign that the market is changing from bullish to
bearish. This is also an example of zone shift. Shift from bull to bear

When a zone shift is detected, look for a signal to trade in the direction of the new trend. If possible, step down to a lower time frame to take the trade.

If a zone shift from Up to Down is detected on a daily chart, move to a 60-minute chart. Sell
when the trend indicators on this 60 minute chart give a sell signal.

• Use the ADX to determine a strong trend. When the ADX is above 30 and rising, assume that a strong trend is in place. The direction of the trend, up or down should be available by simple chart examination. When the market is trending use the extreme levels to identify trades only in the direction of the trend. IF the market is in an up trend, then a dip to 40 should be considered as an opportunity to buy. But a rally to 70 is NOT an opportunity to short sell.