RSI Explained: Relative Strength Index
An oscillator from 0 to 100 that compares the size of recent up days with recent down days. Created by J. Welles Wilder in 1978.
How it's calculated
Over the last 14 sessions, take the average gain on up days and the average loss on down days (with Wilder's smoothing). RSI = 100 − 100 / (1 + average gain / average loss).
How traders use it
The classic reading: above 70 is “overbought”, below 30 “oversold”. Traders also watch divergences, for example the price making a new high while RSI makes a lower high, as a sign that momentum is fading.
What people say
The most common mistake is selling just because RSI is above 70. In strong trends RSI can stay overbought (or oversold) for a long time while the price keeps going. Many traders shift the levels in trends (e.g. 40–80 in an uptrend) or use RSI only to confirm what the trend already says.
Practise with this indicator
Open a real hidden-stock chart with only this indicator turned on and see if it helps you beat the market.
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