Relative Strength Index (RSI)
Momentum oscillator (0–100) that flags overbought conditions above 70 and oversold below 30 over a default 14-period lookback.
RSI = 100 − 100 / (1 + RS), RS = avg gain over n periods / avg loss over n periods
RSI compares average up-closes to average down-closes over a rolling window (default 14 periods), producing a bounded score between 0 and 100. Readings above 70 signal the asset may be overbought; below 30, oversold.
Traders also watch for divergence: price making a new high while RSI fails to confirms warns of weakening momentum. Centreline (50) crossovers work as a trend-continuation filter. RSI is one of the most versatile tools in a trader's kit — usable on any timeframe, any market.
On the desk
A stock rallies for three weeks, pushing RSI to 74 on the daily chart. Price then prints a marginally higher high, but RSI makes a lower high (bearish divergence). A short-side entry triggers on the next bearish candle close, with a stop above the swing high.