Rsi
Family VI · Charts & indicators
Not to be confused with macd.
RSI is a momentum oscillator that measures the speed and magnitude of directional price changes on a bounded 0–100 scale. It is calculated from the average gain and average loss over a lookback period, commonly 14 bars, and is plotted as a single line beneath the price chart. The indicator is used to gauge whether recent buying or selling pressure has been strong or weak relative to its own recent history.
Calculation
RSI is built from two smoothed averages. First, the average gain and average loss over the lookback period are computed; many charting packages use Wilder's smoothing, which is a form of exponential moving average, while others use a simple moving average. The relative strength (RS) is the average gain divided by the average loss, and RSI is then:
RSI = 100 − (100 / (1 + RS))
Because the formula is bounded, RSI cannot fall below 0 or rise above 100. A reading near 70 or above is often described as overbought and a reading near 30 or below as oversold, but these thresholds are conventions rather than fixed rules and are adjusted by traders and platforms.
Worked example
The result of 60.0 sits above the midpoint of 50, indicating that average gains over the period were larger than average losses.
Interpretation and limits
RSI is a momentum measure, not a trend measure. It can remain in overbought territory during a sustained advance or in oversold territory during a sustained decline, so a threshold reading alone is not a reversal signal. Traders often watch for divergence, where price makes a new high or low but RSI does not, as a sign that momentum is weakening. The indicator is also sensitive to the chosen lookback: shorter periods make it more responsive and noisier, longer periods make it smoother and slower. Settings, thresholds and alert behaviour vary by charting platform and are not standardised.
Often confused with
- macd
- MACD is an unbounded oscillator built from the difference between two exponential moving averages and a signal line, so it can rise or fall without a fixed ceiling, whereas RSI is bounded between 0 and 100; the visible sign is that MACD crosses above and below a zero line, while RSI oscillates around a 50 midline.
See also
- forex technical analysis indicators
- price action
- fundamental analysis
- support and resistance
- technical analysis
- fibonacci