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RSI (Relative Strength Index)

In short

Momentum oscillator measuring speed of price changes — signals overbought/oversold

RSI scores a stock from 0–100. Above 70 means it's been rising so fast it might be due for a pullback (overbought). Below 30 means it's fallen a lot and could bounce (oversold).

RSI compares average gains vs average losses over 14 periods. It oscillates between 0 and 100. Readings above 70 suggest overbought conditions; below 30 suggest oversold. Divergence between RSI and price can signal trend reversals.

Formula

RSI = 100 - (100 ÷ (1 + RS)), where RS = Avg Gain ÷ Avg Loss over 14 periods

Thresholds

<30
Oversold — potential buy signal
30-50
Bearish momentum
50-70
Bullish momentum
>70
Overbought — potential sell signal

Related concepts

  • MACD — MACD compares two moving averages to show momentum. When the fast line crosses above the slow line, it's a buy signal. Cross below = sell signal. Like two runners — when the faster one pulls ahead, momentum is shifting.
  • Stochastic Oscillator — Stochastic measures where today's close is relative to the recent high-low range, on a 0–100 scale. Above 80 means the stock closed near its recent highs (overbought). Below 20 means near recent lows (oversold).
  • Williams %R — Similar to stochastic but inverted. Scaled from 0 to -100. Readings near 0 mean the stock closed near its recent high (overbought). Near -100 means near its recent low (oversold).
  • ATR (Average True Range) — ATR tells you how much a stock typically moves in a day. If a $100 stock has ATR of $3, it moves about 3% daily. High ATR means volatile; low ATR means calm. Useful for setting stop-loss distances.