RSI (Relative Strength Index) — what it is and how to read it

What is RSI?

RSI (Relative Strength Index) — the relative strength indicator — is one of the most popular oscillators in technical analysis. It measures the speed and magnitude of price changes, helping assess whether a given instrument is overbought (too expensive) or oversold (too cheap).

RSI was developed by J. Welles Wilder Jr. in 1978 and has since become a standard tool for traders worldwide.

Quick Answer

RSI (Relative Strength Index) is a momentum oscillator developed by J. Welles Wilder Jr. in 1978 that takes values from 0 to 100 over a standard 14-session period. It measures the speed and magnitude of price changes to assess whether an instrument is overbought (RSI > 70) or oversold (RSI < 30), with 50 as neutral. Its strongest signals are divergences, where price and RSI move in opposite directions. RSI gives no certain signals on its own and works best combined with other indicators like MACD. This is educational information, not investment advice.

---

How does RSI work?

RSI takes values from 0 to 100. The standard calculation period is 14 sessions.

Key levels:

• RSI > 70 — the instrument is overbought. The price may have risen too quickly and a downward correction is possible
• RSI < 30 — the instrument is oversold. The price may have fallen too much and a rebound is possible
• RSI = 50 — neutral level, no clear signal

Formula (simplified):

RSI = 100 - (100 / (1 + RS))
RS = average gain from N sessions / average loss from N sessions

You don't have to calculate this manually — every trading platform calculates RSI automatically.

How to interpret RSI?

Buy and sell signals

• Buy: RSI drops below 30, then returns above → signal that overselling is ending
• Sell: RSI rises above 70, then drops below → signal that overbought conditions are ending

Divergences

The strongest RSI signals are divergences — when price and RSI move in opposite directions:

• Bullish divergence: price creates a new low, but RSI creates a higher low → possible upward reversal
• Bearish divergence: price creates a new high, but RSI creates a lower high → possible downward reversal

RSI limitations

• In a strong uptrend, RSI can remain in the overbought zone (>70) for a long time
• RSI alone doesn't give 100% certain signals — combine it with other indicators (e.g., MACD, moving averages)
• In low liquidity markets, RSI can give false signals

How Freenance can help

Freenance helps track your entire investment portfolio in one place. By monitoring your positions in Freenance, you'll make easier portfolio rebalancing decisions — regardless of which technical indicators you use.

👉 Track your portfolio with Freenance — freenance.io

Related Articles

• Analiza techniczna — co to jest i jak działa
• Średnia krocząca (SMA i EMA) — czym jest i jak ją stosować

FAQ

What range of values can RSI take?

RSI is bounded between 0 and 100, with 50 marking a neutral zone where average gains and losses balance. Values above 70 are typically labelled overbought and below 30 oversold, but these are conventions, not buy or sell instructions.

What does an RSI reading above 70 mean?

A reading above 70 indicates that recent gains have outpaced recent losses by a wide margin over the chosen lookback window, often 14 sessions. It signals that an upward move may be stretched, though in strong trends RSI can stay above 70 for weeks without an immediate reversal.

Is RSI useful for long-term investors?

RSI was designed for short and medium-term trading and can be noisy on daily charts. Long-term investors usually look at weekly or monthly RSI as one of many context signals rather than as a trigger for buying or selling individual assets.

What is RSI divergence?

Divergence occurs when price makes a new high or low but RSI fails to confirm it. A bearish divergence appears when price prints a higher high but RSI prints a lower high, and a bullish divergence is the opposite — both can hint at a weakening trend, though they are not guarantees.

Should I use RSI on its own to make investment decisions?

No. RSI is a single technical indicator and does not account for fundamentals, news, liquidity or macro conditions. It works best alongside trend analysis, volume and other tools, and any decision should also reflect your own risk tolerance and time horizon.