What Is RSI (Relative Strength Index)?

How RSI Is Calculated and What It Measures

RSI compares the average size of recent price gains to the average size of recent price losses over a look-back period, typically 14 periods. The formula produces a value between 0 and 100. An RSI of 100 would mean every period in the look-back window closed higher — pure upward momentum. An RSI of 0 would mean every period closed lower. In practice, most readings fall between 30 and 70. The standard formula is: RSI = 100 − [100 ÷ (1 + RS)], where RS is the ratio of the average gain to the average loss over the look-back period.

Traders use RSI to identify potential turning points in price momentum. When RSI rises above 70, it signals that recent buying pressure has been exceptionally strong relative to selling pressure — a condition often described as overbought. When RSI falls below 30, recent selling has dominated — described as oversold. These thresholds are not rigid sell or buy signals; in a powerful uptrend, RSI can stay above 70 for weeks. Many experienced traders adjust thresholds (for example, using 80/20 in strong trending markets) or look for RSI to cross back through the threshold as a signal rather than the threshold breach itself.

A particularly reliable RSI signal is divergence: when price makes a new high but RSI makes a lower high (bearish divergence), or price makes a new low but RSI makes a higher low (bullish divergence). Divergence suggests that momentum is weakening even as price continues in the same direction — often a leading indicator of a reversal. Like all single-indicator signals, RSI divergence produces false signals and works best when confirmed by price action, volume patterns, or other technical evidence.

Key Points

• RSI measures momentum on a 0–100 scale; conventional overbought threshold is 70, oversold is 30, using a 14-period default look-back.
• Overbought or oversold readings do not automatically mean reverse — in strong trends, RSI can remain at extremes for extended periods.
• RSI divergence (price and RSI moving in opposite directions) is one of the more reliable leading signals the indicator produces.
• RSI works best in range-bound markets; in strong trends it can give repeated false reversal signals if used naively.

Learn More

RSI is one of the most widely used technical indicators — but applying it well requires understanding its limitations in trending vs. ranging markets, how to use divergence, and how it interacts with other indicators. See RSI Explained for a complete walkthrough with chart examples, divergence setups, and parameter adjustments.

Related: What Is a Market Order? · Trading Glossary

Related Questions

What does an RSI of 70 mean?

An RSI above 70 means recent price gains have been large relative to recent losses — a conventionally overbought reading. It signals that buying momentum has been strong, but it does not automatically indicate the price is about to fall. In a strong uptrend, RSI staying above 70 is normal. A more actionable signal is when RSI rises above 70 and then drops back below it, potentially signaling momentum exhaustion.

Is RSI a leading or lagging indicator?

RSI sits somewhere between leading and lagging. Because it measures the rate of price change — momentum — it can give early warning of a trend losing steam before price fully reverses, which is a leading characteristic. But because it is calculated from historical price data, it always reflects what has already happened. Divergence signals tend to be more leading; crossovers of the 30/70 levels tend to be more lagging confirmation signals.