Zone Shifts in RSI:
In a traditional market the extreme levels of RSI are 70 (overbought level) and 30 (oversold level). Thanks to Andrew Cardwell and his research which gave birth to a new concept called zone shifts, which help us in identifying when a bull run or bear run is coming to an end.
J Wilder, in his book has mentioned 70 and 30 as overbought and oversold levels, when he first introduced RSI. But, over the time with increased volatility the extreme levels have shifted to 80 (overbought level) and 20 (oversold level).
Andrew cardwell in one his interview has mentioned about zone shifts which says that in a bull market, the extreme levels are 80 and 40 and in a bear market the extreme levels are 60 and 20.
How to use zone shifts effectively in trading?
In a bull market, usually the RSI finds support at 40. But, at some point of time the support is breached and the new support is taken at 20. This indicates that there is a shift from bull run to bears.
In a bear market, usually the RSI finds resistance at 60. But, at some point of time the resistance shifts from 60 to 80. This indicates that there is a shift from bears to bull run.