Relative Strength Index (RSI)
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Definition
RSI is a bounded momentum oscillator (0-100) that compares the magnitude of recent gains to recent losses over a lookback (default 14) to gauge the speed and strength of price moves.
How to read it
Readings above 70 are conventionally 'overbought' and below 30 'oversold', but these are strength readings, not automatic reversal signals. The 50 line acts as a momentum midline: above 50 favors bulls, below favors bears. In strong uptrends RSI oscillates roughly 40-90 (rarely tagging 30); in downtrends roughly 10-60 (rarely tagging 70) - so the effective bands shift with regime.
How practitioners use it
Used as context among multiple indicators — never as a standalone signal to act.
Less common professional uses
In a powerful trend RSI can stay 'overbought' for weeks; selling every 70 print is a classic failure mode. Constance Brown's regime-shifted bands (e.g. 40/80 in bull, 20/60 in bear) address this. Divergence is a warning of momentum loss, not a timing signal - it can persist through multiple new highs; confirm with a price/structure break before acting. Multi-timeframe: use higher-timeframe RSI for bias and lower-timeframe RSI oversold pullbacks for entries; shortening the lookback increases sensitivity and false signals.
Sources & provenance
Wilder 1978; Constance Brown 1999
This page is educational content published by Pachira Aquatica Global LLC. It is not investment advice and not a recommendation.