Relative Strength Index (RSI)

Technical Analysis

RSI is a momentum indicator that moves between 0 and 100, calculated from the ratio of average gains to average losses over a set period.

The default period is 14, and readings above 70 are conventionally called overbought and below 30 oversold. Those thresholds do not predict a reversal; in a strong uptrend RSI can stay above 70 for a long time. When price makes a new high but RSI does not (a divergence), it is read as fading momentum.

Example

A conceptual drawing; it does not show a real series.

If over 14 days the average gain is $2 and the average loss is $1, the ratio is 2 and RSI = 100 - 100 / (1 + 2), about 66.7.

Related Terms

3 Links