The Relative Strength Index (RSI) was developed by J. Welles Wilder and introduced in his 1978 book *New Concepts in Technical Trading Systems*. It remains one of the most widely used technical indicators nearly five decades later.
**What RSI measures**
RSI is a momentum oscillator that measures the speed and magnitude of price changes. It oscillates between 0 and 100 and is calculated over a default period of 14 bars (14 days on a daily chart).
The formula compares average gains to average losses over the lookback period:
RSI = 100 - (100 / (1 + RS))
Where RS = Average Gain / Average Loss over 14 periods.
**The standard interpretation**
- RSI above 70 → the asset is considered **overbought** (may reverse downward)
- RSI below 30 → the asset is considered **oversold** (may reverse upward)
- RSI near 50 → neutral momentum
**The common mistake: treating levels as signals**
A reading above 70 does not mean sell immediately. In strong trends, RSI can stay overbought for extended periods. A stock in a powerful bull trend may maintain RSI above 70 for weeks. Selling every time RSI crosses 70 in an uptrend will leave you missing the majority of gains.
**Better uses of RSI**
1. **Divergence**: If price makes a new high but RSI makes a lower high, momentum is weakening — a potential reversal signal even before price turns.
2. **Failure swings**: If RSI rises above 70, pulls back, rallies again but fails to exceed 70, then breaks below the pullback low — that is a bearish failure swing, a stronger sell signal than a simple overbought reading.
3. **Trend filter**: In a strong uptrend, treat 40–50 as the oversold zone instead of 30. RSI rarely falls below 40 in bull markets.
**How we use RSI on investing.linigu.com**
Our automated technical analysis engine computes RSI(14) for every asset and displays it in the indicator panel. We weight RSI alongside MACD, Stochastic, CCI and Williams %R to generate the overall oscillator signal. A single RSI reading never drives the overall call by itself.