Relative Strength Index (RSI)
A momentum oscillator measuring the speed and magnitude of price changes on a 0-100 scale. Above 70 is overbought, below 30 is oversold.
The RSI measures momentum from 0 to 100: above 70 is overbought, below 30 is oversold. It is a momentum gauge, not a buy-sell signal on its own.
The Relative Strength Index is a momentum oscillator developed by J. Welles Wilder in 1978. It measures the speed and magnitude of recent price changes to evaluate whether an asset is overbought or oversold. The RSI oscillates between 0 and 100, with readings above 70 considered overbought and below 30 considered oversold. It is one of the most popular indicators because it provides clear, bounded signals across any timeframe. The RSI works best as a filter: in an uptrend, readings below 30 mark pullbacks that tend to bounce, while readings above 70 are momentum, not reversal. In a range, the same levels flip meaning, so context decides.
How It Works
- Calculated by comparing average gains to average losses over a default 14-period lookback
- Above 70 = overbought (price may pull back). Below 30 = oversold (price may bounce).
- RSI divergence: price makes a new high but RSI makes a lower high = momentum fading
- The 50 level acts as a trend filter. RSI above 50 = bullish momentum, below 50 = bearish.
Trading Tips
Do not blindly sell at 70 or buy at 30. In strong trends, RSI can stay overbought or oversold for extended periods.
RSI divergence works best on higher timeframes (daily, weekly). Lower timeframes generate too many false signals.
Combine RSI with support/resistance levels. An oversold reading at a major support is a higher-probability buy signal.
Related Terms
Sources
- InvestopediaRSI indicator guide
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