How to Use Overbought Signals

You received an "Overbought" alert from RSI Easy Alert. What now? An overbought signal (usually with RSI > 70) is a warning, not a sell order. It indicates that an asset *might* be ready for a correction, but an experienced trader always looks for further confirmation before acting.

This guide will show you what other indicators and patterns to look for to turn a simple alert into a potential entry point for a short position (downside).

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1Look for Confirmation from the RSI Itself

The first step is to observe how the RSI behaves after reaching the overbought zone.

• Descent from the Critical Zone: A classic sell signal occurs when the RSI, after rising above 70, crosses this level again downwards. This indicates that buying pressure is decreasing and sellers are starting to take control.
• Bearish Divergence (Powerful Signal): This is one of the most reliable warnings. It occurs when the crypto price continues to make higher highs, but the RSI fails to do the same, making equal or lower highs. This imbalance suggests that the strength behind the rise is exhausting, despite appearances.

2Analyze Other Momentum Indicators

Never rely on a single indicator. Look for confirmation from other technical tools.

• Moving Average Crossover (MA/EMA): A strong signal manifests when a short-term moving average (e.g., 10 or 20-period EMA) crosses below a long-term moving average (e.g., 50 EMA). This confirms a change in the short/medium-term trend.
• MACD (Moving Average Convergence Divergence): Look for a bearish crossover, where the MACD line (faster) passes below its Signal Line (slower). Also, a bearish divergence on the MACD, similar to that of the RSI, is a strong sign of weakness.

3Identify Price Patterns (Price Action)

Often the chart itself draws figures that anticipate a reversal.

• Double Top: Look for an "M" formation, where the price tests a resistance level twice without being able to overcome it. The break of the support between the two highs ("neckline") is the short entry signal.
• Head and Shoulders: A pattern with three peaks, of which the central one is the highest (the "head"). The break of the support line connecting the lows (the "neckline") is a very reliable reversal signal.
• Reversal Candles: Look for specific candles like the Shooting Star (long upper shadow, small body at the bottom) or the Bearish Engulfing (a red candle that "engulfs" the previous green candle). They indicate a sudden strong selling pressure.

4Check Trading Volumes

Volume is the fuel of the market. Its analysis is fundamental.

• Volume Increase on the Downside: If you notice a volume spike while red candles or reversal patterns are forming, it is a strong confirmation. It means that many operators are selling with conviction.
• Volume Decrease on Highs: If the price continues to rise but with increasingly lower volumes, buyer interest is exhausting. It is an alarm bell.

5Consider the Context: Support and Resistance

An RSI signal does not live in a vacuum. Where is it occurring?

• Historical Resistance Levels: If the overbought alert occurs precisely when the price touches a strong past resistance (a level where previously the price stopped and went down), the signal is much more powerful.

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