RSI was developed by J. Welles Wilder in 1978 and remains one of the most widely used technical indicators in both stock and crypto markets. It measures the speed and magnitude of recent price changes to evaluate whether an asset is overbought or oversold on a scale of 0 to 100.
How RSI Is Calculated
How RSI Is Calculated
RSI compares the average gains to average losses over a look-back period (default 14 candles). The formula is: RSI = 100 - [100 / (1 + RS)], where RS = Average Gain / Average Loss. A result close to 100 means prices only went up in recent periods; close to 0 means only down.
You don't need to calculate RSI manually — every charting platform (TradingView, ThinkorSwim, Binance) has it built-in. What matters is understanding what the resulting number tells you.
RSI Trading Strategies
RSI Trading Strategies
Classic Overbought/Oversold
RSI above 70: overbought → potential sell or avoid entries. RSI below 30: oversold → potential buy or look for reversal signals. Warning: in strong trends, RSI can stay overbought (>70) for extended periods. Using RSI alone in trending markets leads to premature exits.
RSI Divergence (Most Powerful)
Bullish Divergence: price makes a lower low, RSI makes a higher low → momentum weakening, potential reversal up. Bearish Divergence: price makes a higher high, RSI makes a lower high → momentum fading, potential reversal down. More reliable than simple overbought/oversold signals.
RSI 50 Centerline
RSI above 50 = generally bullish momentum. Below 50 = bearish momentum. RSI crossing from below 50 to above 50 is often a bullish confirmation of trend change. Simple but effective for trend-following strategies.
RSI FAQs
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