RSI
The RSI (Relative Strength Index) is a technical indicator that measures momentum on a scale from 0 to 100. It compares the size of recent gains with recent losses to show how strongly price has been moving in one direction.
Where the RSI comes from and how it is calculated
The RSI was introduced by J. Welles Wilder Jr. in his 1978 book New Concepts in Technical Trading Systems. The standard setting looks at the last 14 periods.
The idea is simple. Take the average gain on up periods and the average loss on down periods, and divide one by the other to get relative strength (RS). The RSI is then 100 minus 100 divided by (1 + RS). If there were only gains, the RSI would be 100; only losses, 0; equal gains and losses, 50.
How to read it
Readings above 70 are traditionally labelled overbought and below 30 oversold, meaning price has moved unusually far and fast in one direction. A reading around 50 means gains and losses have been roughly balanced.
Traders also watch divergences, where price makes a new high or low but the RSI does not, which can hint that momentum is fading.
An example
Say a coin rises on 11 of the last 14 days, with bigger up days than down days, and its RSI reaches 78. That tells you the recent rally has been strong and one-sided. It does not tell you the rally is over. In strong trends, the RSI can stay above 70 for weeks while the price keeps climbing.
Common mistakes
The biggest mistake is treating 70 as an automatic sell signal and 30 as an automatic buy signal. In trending markets this leads to selling too early in rallies and buying too early in crashes. Some traders shift their thresholds in trends, for example reading 40 to 50 as support for the RSI in an uptrend.
The RSI also depends on the timeframe and the period setting. A 14-hour RSI and a 14-day RSI can show opposite readings at the same moment. Using it as one input alongside trend and price structure works better than relying on it alone.
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Frequently asked questions
What is a good RSI value?
There is no good or bad value. Around 50 is neutral, above 70 signals strong upward momentum and below 30 strong downward momentum. What it means depends on the trend.
Should I sell when the RSI is above 70?
Not automatically. High RSI shows strong momentum, which can continue for a long time in a trending market. It is information, not an instruction.
What RSI period should I use?
Fourteen periods is the standard default. Shorter settings react faster but give more extreme readings; longer settings are smoother and slower.
Related terms
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