RSI — Relative Strength Index

Momentum

What it measures

RSI measures the speed and magnitude of recent price changes on a 0–100 scale to identify whether an asset is overbought or oversold. It compares the average of up-closes to down-closes over a lookback period (default 14). It's one of the most widely used momentum oscillators in trading.

How readings are interpreted

Values above 70 indicate the asset has been heavily bought and may be due for a pullback. Values below 30 suggest heavy selling and a potential bounce. In strong trends, RSI can remain extreme (above 70 or below 30) for extended periods — this is called 'staying overbought'. Divergence between RSI and price (price makes new high but RSI doesn't) is a powerful reversal signal.

Conventional levels

Above 70: conventionally described as overbought
Below 30: conventionally described as oversold
50 level: The midline — above 50 = bullish momentum, below 50 = bearish momentum
Divergence: RSI fails to confirm price high/low = likely reversal
In strong trends: use 80/20 instead of 70/30 to reduce false signals

Where it works, and where it does not

Works best in ranging or mildly trending markets where price oscillates. In strong trending markets RSI stays overbought/oversold and generates premature counter-trend signals — use the 50-line rule instead (RSI crossing 50 = trend entry/exit).

Commonly read alongside

MACD: RSI oversold + MACD bullish crossover is a commonly cited confluence
Bollinger Bands: RSI oversold + price at the lower band is a frequently cited combination
ADX: RSI readings are conventionally given more weight when ADX is below 25 (ranging) and less when above 25 (trending)

Known limitations

In uptrends, RSI overbought is NOT a sell signal — price keeps going up
During news events, RSI can spike to extremes and snap back — signals are unreliable
Short-period RSI (5–7) generates too many false signals for swing trading

In practice

RSI is commonly paired with a trend filter such as the 200 EMA, with oversold readings treated as meaningful only while price sits above it
The 50 cross is generally considered more reliable than 70/30 in trending markets
Hidden divergence — price pulling back while RSI holds a higher low — is conventionally read as trend continuation
A 9-period setting is common on short timeframes, 21 for weekly analysis

Plot it yourself. Add this indicator to a chart, change every parameter and watch the line move, then backtest how the rule would have behaved on historical data — free on the S&P 500 ETF, no card.

Create a free account or start with the lessons →

This is reference material, not advice. It describes what each indicator measures and how its readings are conventionally interpreted. Nothing here is a recommendation to buy or sell anything, and no indicator predicts future prices. GU Analyser is an analytical tool — no money is ever traded here.