Trading glossary
RSI is a momentum oscillator that measures the speed and size of recent price changes on a 0-100 scale. Learn how it works, neutrally and clearly.
The Relative Strength Index, developed by J. Welles Wilder, is a momentum oscillator that compares the size of recent gains to recent losses over a set period, commonly 14 bars. It produces a value between 0 and 100, giving a single reading of how strongly and quickly price has been moving lately.
Readings above 70 are often described as overbought and readings below 30 as oversold, though these are conventions rather than signals to act. RSI can stay in extreme territory during strong trends. Some analysts also watch for divergence, where price makes a new high or low that RSI does not confirm.
RSI is a lagging calculation based only on past prices, so it describes momentum that has already occurred. It works better in some market conditions than others and can give misleading readings in strong trends. Traders typically use it alongside other tools rather than as a standalone decision rule.
Overbought usually refers to an RSI reading above 70, suggesting price has risen quickly relative to recent losses. It does not mean price must fall; markets can stay overbought for extended periods during strong uptrends.
The default is 14, chosen by RSI's creator, but the period is adjustable. Shorter periods react faster and produce more extreme swings, while longer periods are smoother. The right choice depends on your analysis style and timeframe.
No. RSI is a descriptive momentum measure, not a recommendation. Overbought or oversold readings describe recent price behavior only and are typically studied together with other indicators and context.