Trading glossary
What is RSI?
RSI is a momentum indicator from 0 to 100 that compares recent gains with recent losses, usually over 14 candles.
Developed by J. Welles Wilder, RSI measures the size of recent up moves against recent down moves. Readings above 70 are traditionally called overbought and below 30 oversold.
In strong trends RSI can stay overbought or oversold for a long time, so those readings describe momentum rather than signal a reversal on their own.
How traders use it
- Use RSI to judge the strength of a move, not to call tops and bottoms alone.
- Look for divergence between RSI and price near key levels.
- In an uptrend, RSI holding above about 40 to 50 on pullbacks is often read as healthy.
Example
During a strong rally, RSI on the daily chart stays above 70 for two weeks while price keeps rising. Overbought did not mean sell. Later, a new price high with RSI only reaching 62 shows momentum fading.
Frequently asked questions
What does overbought mean?
That recent gains have been large compared with recent losses. It does not mean price must fall.
What period should RSI use?
14 is the default on most platforms. Shorter periods are more sensitive and noisier.
Related terms
Educational content only, not financial advice. Chart patterns describe probabilities, not certainties, and every pattern can fail. See our disclaimer.