RSI Indicator Complete Guide: Quantifying Relative Strength

Q: Does oversold RSI guarantee a rebound?

No. Wait for RSI to turn up with volume confirmation before entering.

Q: 6-period or 14-period RSI?

6-period for short-term trading; 14-period for medium-term trend confirmation.

Q: What does RSI 50 mean?

RSI 50 is the bull/bear dividing line. Breaking above signals increasing bullish momentum.

Intermediate Technical Analysis · 7 min read

What is RSI?

RSI (Relative Strength Index), created by J. Welles Wilder in 1978, measures the speed and magnitude of price movements. Values range from 0 to 100 — higher RSI means stronger recent buying pressure; lower means stronger selling pressure.

RSI Formula

Calculate average gains (AU) and average losses (AD) over N periods
RS = AU ÷ AD
RSI = 100 − (100 ÷ (1 + RS))
Common periods: 6 (short-term), 14 (medium-term)

Key RSI Levels

RSI > 70 (or 80): Overbought — watch for pullback risk
RSI < 30 (or 20): Oversold — watch for rebound opportunity
RSI = 50: Bull/bear dividing line

RSI Divergence

Bearish divergence: price makes new high but RSI doesn't — potential top signal. Bullish divergence: price makes new low but RSI doesn't — potential bottom signal.

RSI Flatness (Sticking)

In strong bull markets, RSI may stay above 80 for extended periods. Don't force short positions — wait for RSI to drop below 80 as the first sign of weakness.

FAQ

Does oversold RSI guarantee a rebound?

No. Weak stocks can stay oversold while continuing to fall. Wait for RSI to turn up with volume confirmation before entering.

6-period or 14-period RSI?

6-period is more responsive and popular for short-term trading. 14-period is smoother and better for medium-term trend confirmation.

What does RSI 50 mean?

RSI 50 is the bull/bear dividing line. RSI breaking above 50 from below signals gradually increasing bullish momentum.

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