RSI: what it is and how to read the Relative Strength Index

RSI (Relative Strength Index) is an oscillator with values from 0 to 100, calculated from the last n candles, most often 14. Formula: RSI = 100 − 100 / (1 + RS), where RS is the average price gain over up candles divided by the average loss over down candles in that period. By convention, a reading above 70 is called “overbought” and below 30 “oversold.”

Overbought does not mean price must fall, nor oversold that it will rise: in a strong trend, RSI can stay in the extreme zones for a long time. Signals can be false, and the indicator does not work on its own, so it is combined with an assessment of the trend and key levels. Divergence, meaning a mismatch between the direction of price and RSI, is also popular, but it too can be unreliable.