Relative Strength Index (RSI)
Relative Strength Index (RSI) is a momentum oscillator that measures the speed and magnitude of price movements on a scale from 0 to 100. Learn what it measures, when to trust it, and how to avoid weak signals.
Primary keyword
RSI
Works best for
Range-bound/sideways markets
Failure condition
Strong trending markets (stays overbought/oversold for extended periods)
Plain-English explanation
The RSI is like a speedometer for price momentum. It tells you how fast price is moving up or down compared to recent moves.
Simple way to think about it: Imagine a rubber band. The more you stretch it (price moves too fast), the more likely it will snap back. RSI measures how "stretched" the price is.
The numbers: - Above 70 = "Overbought" - Price has risen fast, might need a breather - Below 30 = "Oversold" - Price has fallen fast, might bounce - 50 is neutral - Price momentum is balanced
Important: RSI doesn't predict reversals! It only shows current momentum. In strong trends, RSI can stay overbought or oversold for a long time.
How it works
RSI calculates the ratio of recent upward price movements to downward movements over a period (typically 14). The result is normalized to a 0-100 scale. Higher values indicate stronger bullish momentum, lower values indicate stronger bearish momentum.
When it works best
- Range-bound/sideways markets
- Finding potential reversal points
- Confirming trend strength
- Spotting divergences (price makes new high, RSI doesn't)
- Markets with clear support and resistance levels
When it fails
- Strong trending markets (stays overbought/oversold for extended periods)
- During news events and high volatility
- When used in isolation without other confirmation
- Low timeframes with lots of noise
- Markets with low liquidity
Common mistakes
- Selling every time RSI hits 70 (in uptrends, it can stay above 70 for weeks)
- Buying every time RSI hits 30 (in downtrends, it can stay oversold)
- Ignoring the overall trend direction
- Using default settings without adjusting for the asset/timeframe
- Not waiting for confirmation (RSI turning from overbought isn't a sell signal by itself)
Pro tips
- Use RSI divergence for high-probability setups
- In uptrends, look for RSI to bounce from 40-50 (not 30)
- In downtrends, look for RSI to reverse from 50-60 (not 70)
- Combine with price action at key support/resistance levels
- Use longer periods (21) for less noise, shorter (7) for faster signals
FAQs about RSI
What is Relative Strength Index (RSI) in trading?
Relative Strength Index (RSI) is a momentum oscillator that measures the speed and magnitude of price movements on a scale from 0 to 100. RSI calculates the ratio of recent upward price movements to downward movements over a period (typically 14). The result is normalized to a 0-100 scale. Higher values indicate stronger bullish momentum, lower values indicate stronger bearish momentum.
When does RSI work best?
Range-bound/sideways markets Finding potential reversal points Confirming trend strength Spotting divergences (price makes new high, RSI doesn't) Markets with clear support and resistance levels
When does RSI fail or become unreliable?
Strong trending markets (stays overbought/oversold for extended periods) During news events and high volatility When used in isolation without other confirmation Low timeframes with lots of noise Markets with low liquidity
What mistakes should traders avoid with RSI?
Selling every time RSI hits 70 (in uptrends, it can stay above 70 for weeks) Buying every time RSI hits 30 (in downtrends, it can stay oversold) Ignoring the overall trend direction Using default settings without adjusting for the asset/timeframe Not waiting for confirmation (RSI turning from overbought isn't a sell signal by itself)
Use RSI in a live workflow
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