A momentum oscillator that measures the speed and magnitude of price changes on a scale of 0 to 100.
The Relative Strength Index (RSI) compares the magnitude of recent gains to recent losses to evaluate whether an asset is overbought or oversold. The standard setting is 14 periods. An RSI above 70 is considered overbought (potentially due for a pullback), and below 30 is considered oversold (potentially due for a bounce). RSI can also show divergence with price, signaling potential reversals.
RSI helps traders identify when a move may be overextended. It is especially useful for timing entries during pullbacks — buying when RSI dips into oversold territory in an uptrend, or selling when it reaches overbought in a downtrend. RSI divergence is one of the most reliable early reversal signals.
A stock is in an uptrend and pulls back. RSI drops to 35 (near oversold). This suggests selling pressure is exhausted, and the pullback may be ending. A trader uses this as confirmation to enter a long trade in the direction of the trend.
RSI oscillates between 0–100. Above 70 is overbought (potential reversal down); below 30 is oversold (potential reversal up).