From nought to a hundred, a strength display:RSI weighs the gains against the pay.
A momentum oscillator that measures the speed and magnitude of price changes on a scale of 0 to 100.
Readings above 70 suggest overbought conditions; below 30 suggest oversold conditions.
In plain words
The Relative Strength Index, or RSI, is a line on a chart that moves between 0 and 100. It compares the size of recent rises with the size of recent falls: the more the recent gains outweigh the losses, the higher the reading.
See it move
In the upper zone: Overbought
Why it matters
By convention a reading above 70 is called overbought and one below 30 oversold, meaning the price has moved a long way in one direction in a short time. These are descriptions of what has happened, and a market can stay above 70 or below 30 for a long time while a trend continues.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
Over the chosen period, commonly 14 bars, a pair’s average gain is 3 pips and its average loss is 1 pip.
- 1Relative strengthaverage gain ÷ average loss = 3 ÷ 1 = 3.
- 2RSI = 100 − 100 ÷ (1 + 3).
- 3100 ÷ 4 = 25, and 100 − 25 = 75.
The RSI reads 75, above the conventional line at 70, so the reading would be described as overbought.
A common mistake
Overbought does not mean the price is about to drop, and oversold does not mean it is about to climb. In a strong trend the RSI can remain at an extreme while the price keeps going.
Check yourself
Learn more
Educational information, not investment advice or a recommendation to trade.