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RSI

A momentum oscillator measuring the speed and magnitude of price changes, ranging from 0 to 100, used to identify overbought or oversold conditions.

What is RSI?

The Relative Strength Index (RSI) is a momentum indicator that measures the speed and magnitude of recent price changes. It oscillates between 0 and 100 and helps identify overbought or oversold conditions.

Developed by J. Welles Wilder Jr. in 1978, RSI remains one of the most widely used technical indicators.

How RSI is Calculated

RSI = 100 - (100 / (1 + RS))

Where RS = Average Gain / Average Loss over N periods (typically 14)

Reading RSI

RSI ValueInterpretation
70+Overbought - potential reversal down
50Neutral
Below 30Oversold - potential reversal up

Trading Strategies

Overbought/Oversold

  • Buy when RSI drops below 30 then rises back above
  • Sell when RSI rises above 70 then drops back below

Divergence

  • Bullish Divergence: Price makes lower low, RSI makes higher low → potential reversal up
  • Bearish Divergence: Price makes higher high, RSI makes lower high → potential reversal down

Trend Confirmation

  • In uptrends, RSI tends to stay between 40-90
  • In downtrends, RSI tends to stay between 10-60

Limitations

  • Can remain overbought/oversold for extended periods in strong trends
  • Works better in ranging markets than trending markets
  • Should be used with other indicators for confirmation
  • Default 14-period may not suit all timeframes