RSI — Relative Strength Index

Overview

The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and size of recent price changes on a bounded 0–100 scale. It answers one question: how strong has the recent buying been versus the recent selling?

Don't confuse it with relative strength. RSI compares a stock to its own recent history; relative strength compares a stock to the market. Same two words, completely different tools.

Origins & history

• 1978J. Welles Wilder introduced the RSI in his book New Concepts in Technical Trading Systems (and in Commodities magazine, June 1978).¹
• AlsoThe same book gave technical analysis the ATR, ADX, and Parabolic SAR — Wilder is one of the most influential indicator designers in history.¹

How it works

Wilder's default is N = 14, using his own smoothing of the average gains and losses. The result is bounded 0–100, with conventional lines at 70 (overbought), 30 (oversold), and a 50 midline that acts as a bull/bear bias divider.¹

Market psychology & mechanics

RSI is a snapshot of momentum exhaustion. A very high reading means buyers have dominated recent bars so completely that the move may be getting stretched; a very low reading means the reverse. It is the crowd's recent urgency, compressed into one number. But "stretched" is not the same as "about to reverse" — which is where most people misuse it.

Honest assessment

Strengths

Bounded and intuitive, RSI is genuinely useful in range-bound markets for spotting exhaustion, for reading divergence (price makes a new high, RSI doesn't), and for using the 50-line as a quick trend bias.

The professional refinement most beginners miss

The classic rule "sell above 70, buy below 30" is the single most common RSI mistake. Andrew Cardwell and Constance Brown documented the range shift: in an uptrend RSI typically oscillates between about 40 and 80 (so 70 is normal strength, not a sell), and in a downtrend between about 20 and 60. In a strong trend RSI can sit "overbought" or "oversold" for weeks. Reading RSI without the trend context inverts its meaning.²

The evidence

As a naive overbought/oversold reversal signal, RSI has weak standalone evidence. As a short-term mean-reversion tool it does better: short-period variants — notably Larry Connors' RSI(2) research — have shown backtested edges buying brief oversold dips within an uptrend, i.e., with the larger trend rather than against it.

Evidence rating: weak as a standalone reversal trigger; useful as a context-aware momentum and mean-reversion tool. Never a system by itself.

Professional uses vs. retail misuses

Going deeper

Variations: Cutler's RSI (simple averages), Stochastic RSI (an oscillator of the RSI, more sensitive), and Connors RSI. Techniques: regular vs. hidden divergence, Wilder's failure swings, and using the 50-line for trend bias. Multi-timeframe: a higher-timeframe RSI sets the regime (which RSI band applies), the lower-timeframe RSI times the entry.

Practice

This concept in the knowledge graph

Resources

• CONCEPTOscillators & Relative strength (the one it's confused with).
• GLOSSARYRSI, overbought/oversold, divergence.