RSI (relative strength index)

The relative strength index was introduced by J. Welles Wilder in 1978. It looks at the average size of up moves and down moves over a look-back period, 14 bars by default, and turns their ratio into a number between 0 and 100.

RSI = 100 minus 100 divided by (1 + RS), where RS is average gain divided by average loss over the period. Wilder used a smoothed average, which is what most platforms apply.

Example

Illustrative figures: over the last 14 days, EUR/USD's average daily gain on up days is 40 pips and its average daily loss on down days is 20 pips. RS = 40 divided by 20 = 2. RSI = 100 minus 100 divided by 3 = about 66.7. If gains and losses were equal, RS would be 1 and RSI 50. If there were no down days at all, RSI would be 100.

How traders use it

• [Overbought and oversold](/glossary/overbought-and-oversold): 70 and 30 are the conventional thresholds.
• [Divergence](/glossary/divergence): price makes a higher high while RSI makes a lower high, suggesting momentum is weakening.
• Trend confirmation: in strong uptrends RSI often stays mostly above 40 to 50; in downtrends mostly below 50 to 60.

Common misconception

An RSI above 70 is not a sell signal by itself. In a strong trend, the RSI can stay above 70 for long periods while price keeps moving. Selling every "overbought" reading in a rising market is a common way to accumulate losses. RSI also depends on its settings: a 7-period RSI hits extremes far more often than a 21-period one.

Our guide to RSI and MACD covers divergences and the ways these indicators are misused.