The MACD indicator is another effective kinetic energy indicator that confirms the reversal breakthrough. In general, this indicator tells us how the price between higher and lower closing prices changes over a period of time.
The RSI indicator can be used in the same way as the MACD indicator, that is, it can also send a divergence signal. Once you have identified this divergence, then you can find a possible trend reversal.
However, the RSI indicator can also effectively indicate how long a trend has been overbought or oversold. If the RSI indicator exceeds 70, it usually means that the market is overbought. If the RSI indicator is below 30, it usually means that the market is oversold.
Since the price fluctuates along the previous trend for a longer period of time, you will usually see the RSI indicator running into overbought or oversold areas, whether it is overbought or oversold, which is usually determined by the direction of the trend.
If the RSI indicator shows that a trend has been overbought for a longer period of time, and then begins to leave the overbought area, then this is likely to imply that the trend is about to turn.
As shown in the chart above, the RSI indicator shows that the market is overbought within a few trading days. Once the RSI indicator falls below 70, it indicates that the trend is likely to turn.