Relative Strength Index (RSI)
Original schematic showing the guide's principal visual relationships.
Formula and components
A bounded momentum oscillator comparing the magnitude of recent gains with recent losses.
RSI = 100 − 100/(1 + average gain ÷ average loss), commonly using 14 periods.
How it works
The indicator transforms price, range, or volume observations over a selected lookback. Shorter settings react faster but create more noise; longer settings respond more slowly and emphasize the underlying regime. Always compare the reading with price structure and timeframe.
How to read it
Read 70/30 zones alongside trend ranges, swing failures, and divergence. In strong uptrends RSI can hold above 40; in downtrends it can remain capped near 60.
Confirmation checklist
Compare the current reading with its centerline, thresholds, prior swing, and price action. Crossovers and divergences are context clues, not standalone entries.
Limitations and false signals
Overbought does not mean price must fall and oversold does not mean it must rise. Extreme readings can persist during strong trends.