What Is RSI?

What is RSI?

RSI (Relative Strength Index) is a momentum indicator that compares recent gains with recent losses to measure the speed of price moves on a 0-100 scale. In the classic reading, above 70 is overbought and below 30 is oversold.

J. Welles Wilder developed RSI and introduced it in his 1978 book New Concepts in Technical Trading Systems. For where the indicator fits in technical analysis as a whole, the crypto technical analysis guide is a good starting point.

How Does It Work?

RSI compares the average of close-to-close gains over a chosen period with the average of losses. When gains dominate, the value rises above 50; when losses dominate, it falls below. The closer it gets to 100, the more one-sided the recent move has been to the upside; the closer to 0, the more one-sided to the downside.

Wilder's default period is 14. On a daily chart that means the last 14 daily closes; on an hourly chart, the last 14 hours. Because RSI measures the balance of price changes rather than the price itself, assets at very different price levels can be compared on one scale: 70 means the same thing for a $0.50 token and a $500 stock.

History and Evolution

In the same book Wilder also introduced other indicators still in use today, such as ATR (average true range), Parabolic SAR and the directional movement system (DMI). RSI spread first through commodity and stock markets, then into currencies and crypto.

Variants followed over time. The best known is Stochastic RSI, which measures where RSI sits within its own recent range and produces a more sensitive, more frequently swinging line. Some platforms also draw a moving average on top of RSI to show its own trend; that extra line helps reading but does not change the core calculation.

Key Concepts

• Overbought: RSI above 70.
• Oversold: RSI below 30.
• Midline (50): above 50 gains dominate; below 50 losses dominate.
• Divergence: price and RSI making highs or lows in different directions.
• Failure swing: described by Wilder, when RSI fails to exceed its previous high or low within a threshold zone.

Formula: How RSI Is Calculated

RSI = 100 − 100 / (1 + RS)
RS = Average gain / Average loss

The averages are taken over 14 periods. In Wilder's method the first average is a simple average; at every later step the previous average is multiplied by 13, the new value is added, and the total is divided by 14. This "Wilder smoothing" keeps RSI from overreacting to a single candle. Some software uses a simple or exponential average instead, which is why the same asset and period can show RSI a few points apart on different platforms.

Worked example: average gain 1.0, average loss 0.5. RS = 1.0 / 0.5 = 2. RSI = 100 − 100 / (1 + 2) = 100 − 33.3 = 66.7. As the average loss approaches zero, RSI approaches 100; as the average gain approaches zero, RSI approaches 0.

Why 30/70 Are Not Signals

The 70 and 30 thresholds describe how one-sided the recent move has been; they do not say the price will turn. An RSI above 70 means "the rise has been fast", not "a decline is coming". That is why the thresholds are read together with support and resistance levels, volume and trend direction. Some analysts move the thresholds to 80/20 in strong trends; in sideways markets 70/30 tends to be more useful.

Divergence: Price and RSI Parting Ways

• Bearish divergence: price makes a higher high while RSI makes a lower high. It is read as fading upside momentum.
• Bullish divergence: price makes a lower low while RSI makes a higher low. It is read as fading downside momentum.

Divergence is a sign of weakening, not a timing tool; in strong trends several divergences can appear in a row while the price keeps going the same way.

In Strong Trends RSI Can Stay in Extreme Zones

In a strong uptrend RSI can stay above 70 for weeks, and in a strong downtrend below 30. In those periods the "overbought" label becomes information about the strength of the trend. Many analysts therefore watch RSI holding the 40-50 area in uptrends, or being turned back at 50-60 in downtrends, as a sign the trend is intact. Trend tools such as the moving average are used alongside it to define direction.

Period and Timeframe Settings

• Short period (e.g. 7-9): more sensitive; reaches extreme zones more often and gives more false readings.
• Standard (14): Wilder's recommendation and the most common setting.
• Long period (e.g. 21-25): smoother; reaches extreme zones less often.

The choice is about what you want to measure, not taste: short periods follow short swings, long periods follow the main trend. The timeframe matters too. RSI on a 1-hour chart and RSI on a daily chart can sit in different zones at the same moment. Because crypto trades without a break, the day boundary used for daily RSI also affects the result.

Live Examples: The RSI Row

COINOTAG technical analysis pages show the 14-period RSI on the daily chart and the zone it falls in. On the crypto side, see Bitcoin technical analysis and support and resistance levels and Ethereum technical analysis; for stocks and commodities, NVIDIA technical analysis and Gold (XAU) technical analysis.

To see RSI for many assets in one table, use the crypto technical summary table and the stocks and commodities technical summary.

Practical Example

Scenario (made-up numbers): an asset climbs from $50 to $80 over two months and daily RSI reaches 76. The price then makes a new high at $82, but RSI only gets to 68.

• The reading above 70 says the recent rise was fast and one-sided.
• A new price high with a lower RSI high is bearish divergence; it shows momentum fading.
• None of this guarantees a reversal. Analysts weigh it together with how the price behaves at nearby support, trading volume and other indicators such as MACD.

Related Terms and Next Steps

To read RSI well, it helps to combine it with moving averages and MACD on the trend side, Bollinger Bands on the volatility side, and candlestick reading and support and resistance on the price side.