What is RSI? (Relative Strength Index)

RSI (Relative Strength Index) is a momentum oscillator developed by J. Welles Wilder in 1978 that converts the ratio of average gains to average losses over a 14-period window into a 0-100 reading. The classical interpretation calls anything above 70 'overbought' (elevated pullback risk) and anything below 30 'oversold' (elevated bounce probability). In strong trends, however, RSI can stay pinned in the 70-90 range for extended periods, which means RSI in isolation is not a trade signal but a filter to be combined with other tools. The most actionable RSI signal is divergence: when price makes a new high but RSI fails to confirm (bearish divergence), trend exhaustion is likely; the inverse (bullish divergence) suggests an upside reversal. Around earnings or major news, RSI is more easily distorted, so volume and structure filters are advised. Period length is tuned to the strategy — 9-period for scalping, 28-period for long-horizon traders. Formula: RSI = 100 - 100 / (1 + RS), where RS = average gain / average loss.