How to Time Your Trades Like Clockwork

July 1, 2025

Last month we talked about the Relative Strength Index (RSI)… one of my favorite technical indicators for timing trades.

The response was overwhelming. Lots of positive feedback… and even more questions.

Melina S. had the best one: “Are there ‘sweet spots’ in RSI readings for entering a trade?”

The short answer is yes. There are RSI readings I consider prime entry points. And there are others I avoid like the plague.

The RSI Trap

Most traders think they understand RSI…

When it rises above 70, the stock is overbought and due for a pullback. When it falls below 30, it’s oversold and ready to rebound.

Simple, right?

That logic would suggest targeting stocks with RSI readings below 30… in oversold territory… with a likelihood of bouncing higher.

Here’s the problem with that approach…

Stocks can stay oversold much longer than you’d expect. Entering a position just because RSI is below 30 can be dangerous.

In fact, of all possible RSI readings, below 30 is at the bottom of my list for entry points.

So if below 30 isn’t attractive… what RSI reading is the sweet spot?

The Sweet Spot

I want to see confirmation of momentum before entering any position.

That’s why I don’t like targeting stocks with RSI below 30. But once RSI breaks above 30… it catches my attention.

From there, I want to see RSI move from below 30 up into the 40-60 range.

That’s my sweet spot.

And within that 40-60 range, I really like when RSI crosses above 50.

Let me show you what I mean with a recent example…

Take a look at this chart of the S&P 500 ETF (SPY):

You can see RSI dipped below 30 on April 3… then broke above 40 (into the sweet spot) on April 9.

On April 24, RSI crossed above 50… and the S&P 500 gained 11.03% through yesterday’s midday trading.

An 11% move in two months? I’ll take that any day.

The Important Caveat

Here’s the key thing to remember about the RSI sweet spot…

For an RSI reading between 40-60 to be considered prime entry territory, it should come after RSI dipped below 30 and is now rising.

That tells me the stock has entered the sweet spot with upward momentum behind it.

What about the opposite scenario? When RSI drops from overbought territory (above 70) down into the 40-60 range?

That’s not the sweet spot in my book. It’s not a red flag either… but it’s not as attractive because the declining RSI indicates momentum is fading.

There are plenty of ways to trade around RSI… and today’s approach is just one option.

But it’s one of my favorite setups… and it works.