What Is RSI (Relative Strength Index)?
The Relative Strength Index, developed by J. Welles Wilder in 1978, is a momentum oscillator that quantifies the velocity and magnitude of recent price movements on a 0 to 100 scale. It compares the average gains on up-candles to the average losses on down-candles over a chosen lookback period (typically 14 candles).
The two thresholds most retail traders watch are 70 ("overbought") and 30 ("oversold"). Above 70 conventionally signals an asset has risen too far too fast and may correct; below 30 signals the opposite. These thresholds are not laws — in strong trends, RSI can remain above 70 or below 30 for extended periods.
RSI works best in range-bound markets where mean reversion is reliable. In trending markets, blindly fading overbought readings is one of the most consistent ways retail traders lose money. RSI divergence — where price makes a new high but RSI prints a lower high — is a separate, more reliable signal of trend exhaustion.
Related terms
- MACD (Moving Average Convergence Divergence) — Trend-following momentum indicator showing the difference between two exponential moving averages.
- Stochastic Oscillator — Momentum indicator measuring where current price sits within its recent high-low range.
- Divergence (Bullish / Bearish) — When price makes a new high or low but a momentum indicator does not — signal of weakening trend.