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Relative Strength Index
A momentum oscillator measuring speed and magnitude of price changes on a 0–100 scale.
Relative Strength Index (RSI)
RSI is one of the most widely used momentum indicators, developed by J. Welles Wilder.
Calculation
RSI = 100 − (100 ÷ (1 + RS))
Where RS = Average Gain over N periods ÷ Average Loss over N periods (typically N = 14)
Reading RSI
- Above 70: Overbought—may be due for a pullback
- Below 30: Oversold—may be due for a bounce
- 50 line: Acts as a trend filter (above = bullish bias, below = bearish)
Divergence signals
- Bearish divergence: Price makes new high, RSI makes lower high → weakening momentum
- Bullish divergence: Price makes new low, RSI makes higher low → selling pressure fading
Important caveats
- In strong trends, RSI can remain overbought or oversold for extended periods
- RSI works best in ranging markets, not trending ones
- Always confirm RSI signals with price action and volume
Key Takeaways
- Context matters when interpreting any financial metric.
- Combine multiple data points for informed decisions.
- Continue learning to build investment knowledge.
Quick Reference
Category
Technical
Difficulty
Beginner
Reading Time
1 min
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Where You'll See This
This concept appears throughout stock detail pages and financial data.