The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and magnitude of recent price changes.
How RSI Works
| Element | Value |
|---|---|
| Range | 0 to 100 |
| Overbought | Above 70 |
| Oversold | Below 30 |
| Period | 14 (default) |
| Middle line | 50 |
RSI = 100 - (100 / (1 + RS)) Where RS = average gain / average loss over 14 periods.
How to Read RSI
| RSI Level | Meaning |
|---|---|
| Above 70 | Overbought — price may pull back |
| Below 30 | Oversold — price may bounce |
| 50 | Neutral — no clear direction |
| 30-70 | Normal range — trend is intact |
| Above 80 (extreme) | Strong trend, possible reversal soon |
| Below 20 (extreme) | Strong trend, possible bounce soon |
Basic RSI Strategies
| Strategy | Action |
|---|---|
| Overbought sell | RSI > 70, look for short entry |
| Oversold buy | RSI < 30, look for long entry |
| RSI trend | RSI above 50 = uptrend, below 50 = downtrend |
| RSI centerline cross | Buy when RSI crosses above 50, sell when below |
RSI Divergence
Divergence is one of the most powerful RSI signals:
| Type | Price | RSI | Signal |
|---|---|---|---|
| Bullish divergence | Lower low | Higher low | Trend reversal up |
| Bearish divergence | Higher high | Lower high | Trend reversal down |
Bullish Divergence
Price makes a lower low but RSI makes a higher low. Momentum is weakening to the downside — a reversal up is likely.
Bearish Divergence
Price makes a higher high but RSI makes a lower high. Momentum is weakening to the upside — a reversal down is likely.
RSI Settings
| Period | Use Case |
|---|---|
| 14 (default) | General purpose |
| 7-9 | Short-term, more signals |
| 20-30 | Long-term, fewer signals |
Shorter periods produce more signals (and more false signals). Longer periods are more reliable but slower.
RSI in Trending Markets
| Trend | RSI Behaviour |
|---|---|
| Strong uptrend | RSI stays above 40-50 even on pullbacks |
| Strong downtrend | RSI stays below 50-60 even on rallies |
In strong trends, overbought/oversold signals are less reliable.
RSI vs Other Oscillators
| Indicator | Best For |
|---|---|
| RSI | Momentum + overbought/oversold |
| Stochastic | Entry timing in ranges |
| MACD | Trend direction + momentum |
| CCI | Cyclical turning points |
Common Mistakes
| Mistake | Why |
|---|---|
| Trading every overbought/oversold signal | In trends, RSI can stay extreme |
| Ignoring divergence | One of RSI’s strongest signals |
| Using RSI alone | Best combined with support/resistance |
| Default settings for all assets | Adjust period based on volatility |
Bottom Line
RSI measures momentum on a scale of 0-100. Above 70 is overbought, below 30 is oversold. Divergence between price and RSI is a powerful reversal signal. In strong trends, RSI can stay overbought or oversold for extended periods. Combine RSI with support and resistance levels for the best results. Default is 14 periods — adjust for your timeframe.