Formula & Calculator
Relative Strength Index (RSI)
Measures the speed and magnitude of recent price changes to identify overbought or oversold conditions, scaled from 0 to 100.
Interpretation
RSI = 100 − (100/(1+RS)), RS = Avg Gain / Avg Loss. Measures momentum and overbought/oversold conditions. Used to identify potential reversals.
Variables
| Symbol | Quantity | Unit |
|---|---|---|
| RSI | Relative strength index | |
| RS | Relative strength (avg gain / avg loss) |
What it means
The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI values range from 0 to 100. Traditionally, RSI > 70 indicates overbought conditions; RSI < 30 indicates oversold. It is used to identify potential trend reversals and to generate buy/sell signals. Understanding RSI is essential for technical traders to time entries and exits.
Worked example
Relative Strength Index – Two Detailed Examples
Real‑World| Parameter | Value |
|---|---|
| Avg Gain | 1.5 |
| Avg Loss | 0.5 |
| Parameter | Value |
|---|---|
| Avg Gain | 0.8 |
| Avg Loss | 1.2 |
Common mistakes
- RSI: Relative Strength Index – measures momentum.
- Avg Gain / Avg Loss: Average of gains and losses over the lookback period.
- RSI > 70: Overbought; RSI < 30: Oversold.
- Divergence: Price and RSI divergence can signal reversals.
Applications
Relative Strength Index (RSI) measures the speed and change of price movements, oscillating between 0 and 100. It is used to identify overbought (above 70) and oversold (below 30) conditions. Traders use RSI to time entries and exits, to confirm trends, and to detect divergences. This is one of the most popular momentum oscillators. Understanding RSI helps in timing trades and in managing risk.
- Identifying overbought and oversold conditions
- Generating buy/sell signals based on RSI levels
- Divergence analysis (price vs. RSI) for trend reversal
- Confirming trend strength and momentum
- Setting stop‑loss and take‑profit levels
Frequently Asked Questions
RSI = 100 - (100 / (1 + RS)), where RS = Average Gain / Average Loss over a chosen period (typically 14). Values above 70 indicate overbought (potential reversal down), below 30 indicate oversold (potential reversal up).
The 14-period setting was introduced by J. Welles Wilder and has become the industry standard. It balances responsiveness and smoothness. However, you can adjust it for different timeframes or asset volatility.
Yes, in strong bull or bear markets, RSI can remain above 70 or below 30 for extended periods. This does not necessarily mean a reversal is imminent; it indicates strong momentum. Always consider the trend context.
A bullish divergence occurs when price makes a lower low but RSI makes a higher low – signaling weakening downward momentum. A bearish divergence is the opposite. Divergences are early warning signals of trend exhaustion.
Both are momentum oscillators, but RSI measures the speed and change of price movements, while Stochastic compares the closing price to the price range over a period. RSI is more commonly used for overbought/oversold signals.
Yes, combining RSI with trend indicators (e.g., EMA) provides stronger confirmation. For example, if RSI is oversold and price is above a key moving average, it may be a stronger buy signal.
For highly volatile assets, you may use a shorter period (e.g., 10) to make it more sensitive. For less volatile assets, a longer period (e.g., 20) reduces noise. Experiment to find what works best.
Yes, RSI can be applied to any timeframe – from 1-minute to monthly. Shorter timeframes produce more signals but also more false signals. Longer timeframes give more reliable signals but are less frequent.