RSI (Relative Strength Index) is a momentum oscillator that measures the speed and change of price movements on a scale of 0 to 100. It identifies overbought and oversold conditions in an asset and can help traders anticipate potential trend reversals.
How RSI is calculated
RSI uses a standard period of 14 candlesticks and measures the ratio of average price gains to average price losses over that period. The calculation produces a value between 0 and 100, where 0 means all periods closed with losses and 100 means all periods closed with gains.
Reading RSI signals
When RSI exceeds 70, the asset is considered overbought—price has risen sharply and may be due for a pullback or reversal. When RSI falls below 30, the asset is considered oversold—price has fallen sharply and may be ready to rebound. These standard levels (70 and 30) can be adjusted depending on the asset and market conditions.
Using RSI with other indicators
RSI is most reliable when combined with other technical indicators, such as moving averages or trendlines. Traders also look for divergence—when RSI and price move in opposite directions—as a signal of potential reversal. RSI works best on larger timeframes and can generate false signals in sideways or choppy markets, so it should never be used as the sole basis for a trading decision.
