What is RSI?

📈 What is the Relative Strength Index or RSI?

The Relative Strength Index (RSI) is a widely used technical analysis oscillator designed to identify overbought and oversold conditions in any traded asset. It is applied in Forex, stocks, and other markets.

RSI Basic Readings & Usage

RSI values range from 0 to 100. Generally, an RSI above 70 indicates overbought conditions, while an RSI below 30 signals oversold conditions.

■ RSI 70+ indicates overbought

■ RSI 30- indicates oversold

RSI helps traders to:

Identify overbought and oversold market levels (primary use)
Recognize potential historical support and resistance levels
Assess the strength and sustainability of trends
Detect early reversals through crosses and slope divergences
Confirm trade signals
Optimize market entries

» Check RSI Precision, an enhanced RSI Indicator | » RSI Precision on TradingView

How can we calculate RSI?

Today, the RSI indicator is built into nearly every trading platform offering technical analysis. RSI can be calculated using the following formula:

100

📐 RSI = 100 - --------------

1 + RS*

Where RS (Relative Strength) for the period (t) is calculated by dividing the average of upward closes during period (t) by the average of downward closes during the same period.

Using RSI to Confirming the Price Trend

The readings of RSI may be used for confirming new trends. In general, an upward trend must have an RSI reading above 50 while a downward trend must have an RSI reading below 50.

■ RSI 50+ Possible Upward Trend Confirmation

■ RSI 50- Possible Downward Trend Confirmation

Note: If you are a day trader then use the RSI indicator only in the 5M chart. If the market is ranging and you trade long at RSI=30 and trade short at RSI=70 you can make very good profits. Remember to use the RSI at the 5M chart.

Key Readings

The Relative Strength Index oscillates between zero (0) and one hundred (100):

An asset is considered overbought when RSI is above 70
An asset is considered oversold when RSI is below 30
When trading high-volatility assets it is recommended to focus on 80,20 instead of 70,30.

Experimenting with RSI

RSI as another technical analysis indicator may be adjusted to a preferable time frame. The fewer periods used the more aggressive RSI indicates an asset while the more periods used the slower the indicator becomes. The standard RSI period value is 14.

Note:

The standard periods for RSI are 14, however, depending on the volatility of the underlying asset you can modify the number of periodstoo enhance accuracy.
In the following two charts, you may compare RSI period=15 and RSI period=50.

Chart: RSI period 15 on EURUSD