What is Relative Strength Index (RSI)?
The Relative Strength Index is a momentum oscillator that measures the speed and magnitude of recent price changes, oscillating between 0 and 100 to identify overbought or oversold conditions.
Relative Strength Index (RSI) Explained
RSI above 70 traditionally indicates overbought conditions (potential sell signal), while RSI below 30 indicates oversold conditions (potential buy signal). However, in strong trends, RSI can remain overbought or oversold for extended periods. RSI divergence — when price makes a new high/low but RSI doesn't — is often a more reliable signal.
Real-World Example
A stock has risen sharply for two weeks and its 14-day RSI reads 82, suggesting it's overbought. A disciplined trader might tighten their stop loss or take partial profits, rather than blindly selling just because RSI is above 70.
Related Terms
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