The Relative Strength Index compares the size of recent gains to recent losses over a lookback period (14 days by default) to produce a single reading between 0 and 100. Readings above 70 are traditionally considered overbought; below 30, oversold. RSI divergence — where price makes a new high or low that RSI fails to confirm — is considered the indicator's most powerful signal.
The formula
100−100 ÷ (1 + Average Gain ÷ Average Loss)
= RSI
Why it matters
- —Extreme readings (above 78 or below 22) are far more meaningful than readings hovering near the centre — RSI works best at the edges, not in the middle.
- —In a strong trend, RSI can stay overbought or oversold for weeks — treating an overbought reading as an automatic sell signal can mean exiting a winning trend far too early.
- —Divergence between price and RSI — price making a new high while RSI makes a lower high — is widely regarded as the most reliable warning that momentum is fading before price confirms it.
How to read it
| Above 70 | Overbought — buying has been excessive relative to the recent norm |
| 30–70 | Neutral range — neither buyers nor sellers clearly dominant |
| Below 30 | Oversold — selling has been excessive relative to the recent norm |