RSI (Relative Strength Index)

The Relative Strength Index is a momentum oscillator developed by J. Welles Wilder Jr. in 1978, published in his book 'New Concepts in Technical Trading Systems.' It measures the speed and magnitude of recent price changes on a scale of 0-100.

Calculation

RSI = 100 - (100 / (1 + RS)), where RS = Average Gain over N periods / Average Loss over N periods. The standard lookback period is 14 (days, hours, or any timeframe). Wilder used a smoothed moving average method.

Interpretation

- Above 70: Overbought — the asset may be due for a pullback. However, in strong uptrends, RSI can remain above 70 for extended periods

- Below 30: Oversold — potential buying opportunity. In strong downtrends, RSI can stay below 30 for weeks

- 50 level: Acts as a centerline. RSI staying above 50 confirms an uptrend; staying below confirms a downtrend

Advanced Techniques

- Divergence: When price makes a new high but RSI makes a lower high (bearish divergence), it signals weakening momentum and potential reversal. Bullish divergence is the opposite

- Failure Swings: A top failure swing occurs when RSI goes above 70, pulls back, rallies again but fails to exceed 70, then breaks below the pullback low

- Different periods: Short-term traders use RSI(9) for more sensitivity; swing traders may use RSI(21) for smoother signals

Limitations

RSI can give false signals in trending markets — an overbought reading during a strong rally doesn't necessarily mean 'sell.' It works best in range-bound markets. Always combine with other indicators (volume, trend lines, moving averages) for confirmation.

📊 ECONPLEX

RSI (Relative Strength Index)

Technical Analysis

MACD (Moving Average Convergence Divergence)

Moving Average (MA)

Bollinger Bands

Support & Resistance

Golden Cross

Dead Cross (Death Cross)