RSI (Relative Strength Index)

What it measures

Momentum, scaled 0-100, based on the ratio of average recent gains to average recent losses over 14 periods (Wilder's smoothing).

Formula

RSI = 100 - 100/(1 + Average Gain / Average Loss)

Normal range

Above 70 is conventionally read as "overbought", below 30 as "oversold" - but RSI can stay pinned near an extreme through a strong trend for an extended period.

How it fails

"Overbought" is a label about recent momentum, not a price ceiling - a strongly trending asset can post an overbought RSI reading for weeks while continuing to rise, and treating the label as a sell signal on its own has been wrong before.

Related metrics

MACD, Bollinger Bands

Bull read

An RSI recovering from an oversold reading has sometimes preceded a bounce.

Bear read

An overbought RSI in a strong uptrend is often just confirmation of strength, not an imminent reversal signal.