RSI (Relative Strength Index): the complete guide

What the RSI measures

The Relative Strength Index was introduced by J. Welles Wilder in 1978. It compares the average size of up-closes with the average size of down-closes over a window, usually 14 periods, and expresses the result on a scale from 0 to 100.

An RSI of 50 means gains and losses have been of similar size. Above 50, buyers have dominated the window; below 50, sellers have. The further from 50, the more one-sided the recent movement.

How it is calculated

RS = average gain / average loss
RSI = 100 − 100 / (1 + RS)

Wilder smooths the averages: each new average equals the previous one multiplied by (n − 1), plus the latest value, divided by n. This smoothing makes the RSI react progressively rather than jump with every candle. Because of it, an RSI needs a history several times longer than its period to stabilise.

Reading 70 and 30

Classic thresholds are 70 (overbought) and 30 (oversold). They describe an intense movement, not a reversal signal. In a strong uptrend, the RSI can stay above 70 for weeks while the price keeps rising; selling “because the RSI is overbought” is one of the most common beginner mistakes.

Many analysts adapt the zones to the regime: in an uptrend the RSI tends to oscillate between 40 and 80, in a downtrend between 20 and 60. A pullback that holds around 40 in an uptrend says more than a touch of 70.

Divergences

A bearish divergence appears when the price makes a higher high while the RSI makes a lower high: the rise continues, but with less force. A bullish divergence is the mirror image. Divergences indicate weakening momentum; they can last a long time before anything happens, and many never lead to a reversal.

Common mistakes

• Treating 70 as “sell” and 30 as “buy” regardless of the trend.
• Comparing RSIs calculated on different periods or time frames.
• Ignoring the context: an oversold RSI during a market-wide sell-off is not the same as an isolated dip.
• Using the RSI alone. Momentum confirms or questions a reading; it does not replace one.

The RSI in InvestAI

InvestAI calculates the RSI with Wilder's smoothing on daily or weekly candles depending on the reading horizon you choose, and adapts the period to that horizon. The screen shows the value, its position on a gauge from bullish to bearish reading, and a short explanation. Favourites trigger an alert when they enter an overbought or oversold zone.