RSI (Relative Strength Index)
RSI is a momentum indicator that shows, on a scale of 0 to 100, how strong recent up closes have been compared with down closes. The default setting is 14 periods. The 70 and 30 lines are widely used, but a reading above 70 does not mean price "must fall", nor one below 30 that it "must rise".
Which question does RSI answer?
RSI answers this question: over the last 14 candles, have close-to-close rises or falls dominated, and by how much? Above 50, the average gain is larger than the average loss; below 50, the reverse holds.
RSI does not measure price itself but the balance of changes. So price can make a new high while RSI makes a lower one. How that difference is read is covered on the divergence page.
How it is calculated
- Find each candle's change. Change = this candle's close − the previous candle's close. Positive changes are counted as gains, and the absolute value of negative changes as losses.
- Take the first averages. The gains and losses of the first 14 candles are each given a simple average.
- Smooth them with Wilder's method. For every later candle: new average = (previous average × 13 + this candle's value) ÷ 14. This is done separately for gains and losses.
- Turn the ratio into a 0–100 scale. RS = average gain ÷ average loss. RSI = 100 − 100 ÷ (1 + RS). With no losses at all, RSI is 100.
How it is commonly read
- Above 70: the area where rises have clearly dominated recently. It is often called overbought.
- Below 30: the area where falls have clearly dominated. It is often called oversold.
- The 50 line: where rises and falls are in balance. Which side of 50 RSI stays on gives a rough idea of momentum's direction.
- Comparison with price: are price and RSI making new highs or lows together? If not, the difference is read as divergence.
70 and 30 are common thresholds, not rules. Some users choose more extreme ones such as 80/20. The shorter the period, the more volatile RSI becomes and the more often it reaches the thresholds.
The same reading, different contexts
What the 70 or 30 threshold means depends on the structure the market is in.
Strong uptrend
Because most closes come in higher, RSI can stay above 70 for a long time. This shows a strong rise, not that a fall is near.
Strong downtrend
RSI can stay below 30 for a long time. An "oversold" reading can remain in place while price keeps falling.
Sideways market
When price moves back and forth in a range, RSI also swings between 30 and 70. Approaches to the thresholds may line up more with the edges of the range.
What it shows, what it does not prove
What it shows
- Whether close-to-close rises or falls have dominated over the last 14 candles
- Whether momentum is strengthening or fading, when compared with price
- How one-sided the price move has been
What it does not prove
- That price will fall above 70 or rise below 30
- When a reversal will happen; RSI is calculated from closes, so it lags
- Anything about wicks or moves inside the candle; it only uses closes
The MarketLevelMap view
How it relates to zones
RSI does not name a price level on its own; it describes with what momentum price reaches a zone. Approaching a resistance zone with RSI above 70 shows a strong move; whether the zone holds is still decided by the closes around it.
That is why RSI is better read together with zones. A rejection at a zone together with RSI falling back below 70 is a case of two observations pointing the same way. But both come from the same closing prices, so this is the language of probability, not certainty.
Often confused with
For general information only. Not investment advice.Last updated: