Glossary
Relative Strength Index (RSI)
A 0–100 momentum oscillator that compares the size of recent gains with recent losses, with 70 and 30 as common extreme levels.
The Relative Strength Index (RSI) is a momentum indicator that measures how strongly a security has been rising versus falling over a recent window, usually 14 periods. It is scaled from 0 to 100. J. Welles Wilder Jr. introduced it in his 1978 book New Concepts in Technical Trading Systems, and it has become one of the most widely used oscillators on trading platforms.
How it works
RSI averages the up moves and the down moves separately, compares them, and maps the result onto 0–100.
Wilder's version smooths the averages, so each new value carries over 13/14 of the previous average and adds 1/14 of the latest change. An RSI above 50 means average gains are larger than average losses.
How it is read
- Extremes. Readings above 70 are commonly called Overbought and below 30 Oversold. Some traders use 80/20 for volatile stocks.
- Trend ranges. In strong uptrends RSI often holds between about 40 and 80; in downtrends between about 20 and 60. A shift in that range can hint at a change in trend.
- Divergence. A new price high without a new RSI high suggests weakening momentum. See Divergence.
Common misconceptions
RSI is not a measure of Relative strength against a benchmark, despite the name; it compares a stock only with itself. And an overbought reading is not a sell signal by itself. In persistent trends RSI can stay above 70 or below 30 for weeks, so many traders combine it with a trend filter such as a moving average.