Relative Strength Index (RSI)
The Relative Strength Index is a momentum oscillator that measures the speed and magnitude of recent price changes on a scale of 0 to 100. Developed by J. Welles Wilder, RSI identifies overbought and oversold conditions and is one of the most widely used indicators in technical analysis.
How It Works
RSI is calculated in two steps:
Step 1 — Relative Strength:
RS = Average Gain over N periods / Average Loss over N periods
RSI = 100 - (100 / (1 + RS))
Avg Gain = ((Previous Avg Gain × (N-1)) + Current Gain) / N
Avg Loss = ((Previous Avg Loss × (N-1)) + Current Loss) / N
Indicator Type
Subchart — RSI is rendered in a separate panel below the main price chart with its own 0–100 Y-axis.
Settings
| Parameter | Type | Default | Description |
|---|
period | number | 14 | Lookback period for the RS calculation. |
overbought | number | 70 | Upper threshold. RSI above this level is considered overbought. |
oversold | number | 30 | Lower threshold. RSI below this level is considered oversold. |
color | color | #a78bfa | Color of the RSI line. |
lineWidth | number | 1.5 | Thickness of the RSI line in pixels. |
Display Settings
| Parameter | Type | Default | Description |
|---|
displayMode | select | line | Rendering mode: line (continuous), columns (histogram bars), candles (OHLC bodies). |
highlightAnomalies | boolean | false | Highlight bars where RSI value is statistically anomalous. |
anomalyThreshold | number | 2.0 | Standard deviations above mean for anomaly detection. |
anomalyPeriod | number | 50 | Lookback window for anomaly mean/stddev calculation. |
Period Tuning
| Period | Character | Best For |
|---|
| 7 | Very fast, noisy | Scalping, 1m–5m charts |
| 9 | Fast | Intraday trading, 5m–15m charts |
| 14 | Standard (Wilder’s original) | General purpose, all timeframes |
| 21 | Slow, smooth | Swing trading, daily charts |
| 25+ | Very slow | Position trading, filtering major moves only |
The standard 14-period RSI works well in most situations. Shortening the period makes RSI reach overbought/oversold more frequently (more signals, more noise). Lengthening it makes RSI smoother but slower to react.
Interpretation
Overbought and Oversold
The classic interpretation:
- RSI above 70: Overbought — the asset has been rising aggressively and may be due for a pullback.
- RSI below 30: Oversold — the asset has been falling aggressively and may be due for a bounce.
However, these are not automatic reversal signals. In strong trends, RSI routinely stays in overbought or oversold territory for extended periods.
Adjusted Levels for Trending Markets
In a strong uptrend, RSI rarely drops below 30. The effective range shifts upward:
| Market State | Overbought Zone | Oversold Zone |
|---|
| Strong uptrend | 80+ | 40 |
| Neutral/ranging | 70 | 30 |
| Strong downtrend | 60 | 20 |
overbought and oversold settings to match the prevailing trend. For example, in a confirmed bull market on the daily chart, setting overbought to 80 and oversold to 40 produces more useful signals.
Centerline Crossovers
- RSI crossing above 50: Momentum shifting bullish. Average gains exceeding average losses.
- RSI crossing below 50: Momentum shifting bearish. Average losses exceeding average gains.
The 50 level acts as a trend filter: sustained RSI above 50 = bullish regime, sustained below 50 = bearish regime.
Failure Swings
A failure swing is a specific RSI pattern that Wilder himself considered the strongest RSI signal:
Bullish failure swing:
- RSI drops below 30 (oversold).
- RSI bounces above 30.
- RSI pulls back but stays above 30 (does not make a new low).
- RSI breaks above the bounce high → buy signal.
Bearish failure swing:
- RSI rises above 70 (overbought).
- RSI drops below 70.
- RSI rallies but stays below 70 (does not make a new high).
- RSI breaks below the pullback low → sell signal.
RSI Trend Lines
You can draw trend lines on the RSI subchart itself:
- A broken RSI uptrend line often precedes a price breakdown.
- A broken RSI downtrend line often precedes a price breakout.
- RSI trend line breaks typically lead price trend line breaks by 1–3 bars.
Alerts
RSI supports the following alert rules:
| Alert Event | Description |
|---|
overbought | RSI crosses above the overbought threshold |
oversold | RSI crosses below the oversold threshold |
In strong trends, RSI can stay overbought or oversold for extended periods — an overbought reading alone is not a sell signal. Look for RSI divergences, failure swings, or combine with price action at key levels for higher-probability setups.
Combining with Other Indicators
| Companion | Strategy |
|---|
| Bollinger Bands | RSI oversold + price at lower Bollinger Band = strong bounce zone |
| VWAP | RSI oversold + price below VWAP returning to VWAP = mean reversion entry |
| Volume Bars | RSI overbought + declining volume = weakening rally, potential reversal |
| MACD | RSI divergence + MACD histogram declining = double momentum confirmation |
| Session Levels | RSI oversold at previous day low = high-probability support bounce |
Common Pitfalls
- Mechanical overbought = sell, oversold = buy — This works in ranges but fails badly in trends. Always determine market context first.
- Ignoring the 50 line — The centerline is more useful as a trend filter than the 70/30 levels in many situations.
- Too-short period on high timeframes — RSI(7) on a daily chart produces many false signals. Use 14 or higher for daily+ charts.
- Not confirming with price action — RSI should confirm what price structure suggests, not override it. An oversold RSI does not help if price structure is clearly bearish (lower lows, lower highs, breaking support).
Practical Considerations
- Startup period: RSI requires approximately
10 × period bars to fully stabilize due to Wilder’s smoothing method. The first few RSI values on a freshly loaded chart may differ slightly from stabilized values.
- All timeframes: RSI works on any timeframe from 1-minute to monthly. Lower timeframes produce more noise; higher timeframes produce smoother, more reliable signals.
- Crypto-specific: Crypto markets trend harder than equities. In a crypto bull run, RSI(14) on the daily chart can stay above 70 for weeks. Consider the adjusted levels table above.
- RSI Divergence — Automatically detects price-RSI divergences
- MACD — Complementary momentum indicator based on moving average convergence
- Bollinger Bands — Volatility bands for overbought/oversold confluence