How to read Momentum Indicators

With Momentum indicators stock traders look for controversy between chart prices and Indicator suggestions:

A. directional divergence between the price and momentum signals of a trend's developing weakness.

B. price spikes that occur during weak momentum, are the last warning signals of the trend change.

C. also trend change should be expected during sideways moving prices and controversially strong momentum.

Momentum indicators, such as RSI and Stochastic, are favorite indicators for non-trending markets. Momentum indicators ideally gauge whether the market is overbought or oversold during its non-trending state, and highlight potential reversal points before those actually occur.

Quick Summary

Trading with RSI indicator involves the following signals:

RSI moving above 50 level — uptrend is confirmed, below 50 — downtrend is confirmed.
RSI peaking above 70 level — market is overbought.
RSI staying above 70 level — uptrend is running strong.
RSI exiting 70 level — downtrend is underway, or at least a correction down is due.

Same for RSI falling below 30:
below 30 — market is oversold,
staying below 30 — downtrend is running strong,
exiting above 30 — uptrend is underway, or at least an upward correction is due.

RSI diverging from price on the chart — an early warning of a possible trend change.