RSI (Relative Strength Index) is a momentum indicator that measures how strong recent up moves have been compared to recent down moves. It oscillates between 0 and 100 and is commonly used to identify overbought or oversold conditions.
RSI cannot leave the 0 to 100 band, which is what makes 70 and 30 usable as fixed reference points. The line is built only from the stock's own gains and losses over the lookback window.
The Standard 14-Period Formula
The classic RSI utilizes a 14-period lookback window. It computes a smoothed average of daily positive price changes (gains) versus daily negative price changes (losses):
RS = Smoothed Average Gain ÷ Smoothed Average Loss
RSI = 100 − (100 ÷ (1 + RS)) = (100 × Smoothed Average Gain) ÷ (Smoothed Average Gain + Smoothed Average Loss)
The 30, 50 and 70 Levels
70: Overbought
When RSI rises above 70, recent gains have been strong relative to losses. Traders often treat this as a zone where the move may be stretched and a pullback becomes more likely.
30: Oversold
When RSI falls below 30, recent losses have been strong relative to gains. This is commonly viewed as a zone where the decline may be stretched and a bounce becomes more likely.
50: Midline
The 50 level acts as a rough dividing line between bullish and bearish momentum.
RSI above 50 generally shows that average gains are outweighing average losses.
RSI below 50 generally shows that average losses are outweighing average gains.
A cross above or below 50 is often used as a simple momentum shift signal.
Tool Glossary
The Basics
Candle (OHLC)
One bar of price data: the open, high, low and close. This tool uses the close to compute RSI. The open, high and low do not go into the reading.
Session
One trading day. Time in this tool is measured in sessions rather than calendar days, so weekends and holidays are skipped.
The Patterns
RSI
The Relative Strength Index, a 0 to 100 reading built from the size of recent up closes against recent down closes. This tool uses a 14-session lookback. The Crosses mode measures the session RSI moved through the level you set. The State mode measures sessions while RSI sits above or below it.
Lookback Window
How far back a calculation should measure. This tool uses 14 sessions and does not let you change it. A shorter window would turn faster. A longer one would be slower.