RSI: Relative Strength Index
Also known as: RSI, RSI Indicator, Wilder's RSI, Momentum Oscillator
What is it?
The Relative Strength Index is a momentum oscillator that compares the size of recent gains to the size of recent losses and expresses the result as a single number between 0 and 100. The standard setting is 14 periods. If the average gain over the last 14 bars is 1.8 points and the average loss is 0.7, the ratio is roughly 2.57 and RSI reads about 72.
- Oversold
- Neutral
- Overbought
Readings above 70 are conventionally called overbought and readings below 30 oversold, which describes how stretched the recent move is - it does not describe what price will do next. That distinction is where most RSI mistakes begin. In a strong trend the indicator can hold above 70 for weeks while price keeps climbing, so treating 70 as a sell trigger means fading the strongest part of the move.
RSI is most useful as context on a higher timeframe, or as one condition inside a rule set, rather than as a standalone entry.
Why it matters: RSI puts one number on how stretched a move is, but overbought is a description of the past, not an instruction to trade against the trend.
RSI = 100 - (100 / (1 + average gain / average loss))
Used as context it filters weak entries well; used as a standalone reversal trigger it puts you on the wrong side of exactly the trends worth trading.
Real-world example
During the 2024 gold advance the daily RSI held above 70 for more than three consecutive weeks while price continued higher - every overbought reading in that stretch was a continuation, not a top.
How SignalBots handles it
RSI is one of several conditions behind SignalBots entry logic rather than a signal on its own, so an alert is not raised simply because a threshold was crossed. See /risk-warning.
Pro tip
Read RSI on a timeframe above the one you trade. An overbought 15m reading inside a rising daily trend is a pullback to buy, not a top to sell.
Common pitfalls
Selling every time RSI crosses 70. In a sustained trend that threshold is crossed early and stays crossed, so the trade fights the move for weeks.
Frequently asked questions
What RSI period should I use?
14 is the standard and the one most published rules assume. Shorter periods such as 7 or 9 react faster and cross the thresholds far more often, which raises both the signal count and the false-signal count.
Does RSI above 70 mean I should sell?
No. It means recent gains have been large relative to recent losses. In a trending market RSI can stay above 70 for weeks, so the reading is context about strength rather than a reversal instruction.
What is RSI divergence?
Divergence is when price makes a higher high while RSI makes a lower high, suggesting the move is losing force. It is a warning that often appears well before any turn, and frequently resolves without one.
Is RSI useful for automated strategies?
Yes, most often as a filter rather than a trigger - for example allowing long entries only while RSI is above 50. As a standalone threshold cross it tends to generate a high rate of false signals.
How is RSI different from Stochastic?
RSI compares average gains to average losses, while Stochastic compares the close to the recent high-low range. Stochastic is the more sensitive of the two and reaches its extremes considerably more often.
