The Relative Strength Index (RSI) is one of the first indicators most traders meet — and one of the most misused. Here's what it actually measures and how to read it without fooling yourself.
What RSI measures
RSI is a momentum oscillator that compares the size of recent gains to recent losses, then scales the result from 0 to 100. The standard setting is 14 periods. In plain terms: it tells you how strongly price has been pushing in one direction lately, not where price will go next.
- Above 70 — often called "overbought": recent buying has been strong.
- Below 30 — often called "oversold": recent selling has been strong.
- Around 50 — momentum is roughly balanced.
The mistake almost everyone makes
"Overbought" does not mean "sell," and "oversold" does not mean "buy." In a strong trend, RSI can sit above 70 (or below 30) for a long time while price keeps running. Selling every time RSI hits 70 in an uptrend is a fast way to fight the market.
Treat RSI as a description of momentum, not a trigger.
More useful ways to use it
- Divergence — price makes a higher high but RSI makes a lower high. That hints momentum is fading. It's a warning, not a guarantee.
- Trend context — in an uptrend, RSI pullbacks toward 40–50 can mark where buyers step back in.
- Confluence — RSI is far more reliable when it lines up with support and resistance or a clear level.
A word of caution
No single indicator is an edge. RSI lags, it whipsaws in choppy markets, and it works best as one input among several — which is exactly how a validated trading signal treats it. Size every trade with a defined risk using the risk/reward calculator.
Indicators describe the past. Your risk plan is the only thing that protects the future.
Education only — not financial advice.