RSI indicator: what it is and how to read it
By Bec, futures trader and founder of Wildflower · Updated
The RSI (relative strength index) compares the size of recent gains with recent losses and turns the answer into a number from 0 to 100. Above 50, recent gains have been bigger than losses. Many traders mark 70 and 30 as “overbought” and “oversold” levels, but those are labels, not predictions.
What the RSI measures, and why it’s called that
The RSI looks at how much price closed up or down on each of the last few One bar on a price chart. It shows where price opened and closed, and the highest and lowest it reached, in one stretch of time.More in the glossary. It adds up the rises and the falls separately, then compares them. If the rises have been much bigger, the RSI is high. If the falls have been bigger, it’s low. That makes it a measure of How fast and how strongly price has been moving in one direction recently.More in the glossary: how strongly price has been moving one way.
It always sits between 0 and 100. At 100, every recent close was higher than the one before. At 0, every one was lower. At 50, the rises and falls were the same size.
The name can confuse people. “Relative strength” here means a market’s gains compared with its own losses. It doesn’t compare one market with another.
How the RSI is worked out, step by step
1. Measure each change
Take each close minus the close before it. Here the RSI uses 5 candles, to keep the picture small.
2. Split gains and losses
A rise is a gain. A fall is a loss, counted as a positive number. The other side is zero.
3. Average them
Average the gains and the losses over the length. After the first one, Wilder’s smoothing keeps each average going.
4. Turn it into 0 to 100
Divide average gain by average loss, then RSI = 100 − 100 ÷ (1 + that number).
- First value (candle 6): the first five changes are +2, −1, +2, −1, +2. Average gain = 6 ÷ 5 = 1.2. Average loss = 2 ÷ 5 = 0.4.
- Divide: 1.2 ÷ 0.4 = 3. RSI = 100 − 100 ÷ (1 + 3) = 75.
- Next candle, a fall of 3: average gain = (1.2 × 4 + 0) ÷ 5 = 0.96. Average loss = (0.4 × 4 + 3) ÷ 5 = 0.92. RSI = 100 − 100 ÷ (1 + 0.96 ÷ 0.92) = 51.06.
That smoothing, (last average × (length − 1) + new value) ÷ length, is how J. Welles Wilder built it. It works like a slow A moving average that gives the newest closes more weight, so it reacts sooner than a simple one of the same length.More in the glossary. Some tools use simple averages instead, and their RSI reads a little differently.
Wilder used 14 candles, and most charting tools start there. It’s a starting point, not a rule. A shorter length makes the RSI swing more, and a longer one makes it calmer. The length is your choice.
How to read the RSI: 70, 30 and 50
70 and 30. Wilder marked 70 and 30. Above 70 is often called overbought, and below 30 oversold. Those words only describe what already happened: price has risen (or fallen) hard. They don’t mean it has to turn. Some traders use 80 and 20 instead. The levels are your choice.
Crossing back. Many traders watch for the RSI going past a level and then crossing back through it, such as dropping below 30 and then rising above it again.
The midline, 50. Above 50, recent gains have been bigger than recent losses. Some traders watch for the RSI crossing 50 as a change in which side has been stronger.
Staying high. In a strong move, the RSI can stay above 70 (or below 30) for a long time. The third picture shows it staying above 70 while price kept climbing.
What counts as a cross, and what doesn’t
It has to go past the level first. For a cross back above 30, the RSI has to have been below 30 before. Getting close to 30 isn’t the same.
Then come back through it. While it’s still below 30, nothing has crossed back yet.
Closed candles. The RSI uses the close, so it moves while a candle is forming. It can dip below 30 and come back before the candle ends. Many traders only count the value once the candle has closed.
Timeframe changes it. A 5-minute RSI and a 1-hour RSI are built from different candles, so they give different numbers at the same moment.
What the RSI can and can’t tell you
The RSI describes the past few candles. It tells you whether recent closes have mostly risen or fallen, and by how much. It doesn’t tell you what happens next, and a high reading can keep getting higher.
Because it only uses closes, the RSI ignores wicks. A candle with a long wick and a small body changes it very little.
Where the RSI comes from
J. Welles Wilder Jr., an American engineer turned trader, introduced the RSI in his 1978 book New Concepts in Technical Trading Systems. The same book introduced average true range (ATR) and the parabolic SAR. The RSI is now on almost every charting platform, and it’s worked out the same way on futures, stocks, forex and crypto.
Often confused with
Stochastic oscillator. Also runs from 0 to 100, but it measures where the close sits inside the recent high to low range, not gains against losses.
Relative strength (comparison). Dividing one market’s price by another’s to see which is doing better. It shares the name but not the maths.
MACD. Another momentum reading, built from two moving averages, with no top or bottom. Read about MACD.
RSI divergence. When price makes a new high or low and the RSI doesn’t. Read about divergence.
An RSI indicator for TradingView
Have every RSI cross marked, to your own levels
Tell Wildflower’s Indicator what you want in plain words, like “mark every candle where the RSI crosses back above the level I choose”. You type the length and the levels. It marks every cross on a chart so you can check it matches your rules. Then it gives you a script to add to TradingView, with a step-by-step guide.
Try it free. You only pay when you add it to TradingView.
Common questions
What does RSI stand for?
Relative strength index.
What is a good RSI setting?
There isn’t one right setting. Wilder used 14 candles and most charts start there, but the length is your choice.
What do RSI 70 and 30 mean?
They’re levels Wilder marked. Above 70 is often called overbought and below 30 oversold. They describe a strong recent move, not what comes next.
What does RSI above 50 mean?
Recent gains have been bigger than recent losses, over the length you chose.
Can the RSI stay overbought?
Yes. In a strong climb it can stay above 70 for many candles.
How is the RSI calculated?
Average gain ÷ average loss over the length, then 100 − 100 ÷ (1 + that number). See the worked example.
Why is my RSI different from another chart’s?
Check the length, the timeframe and the smoothing. Some tools use simple averages instead of Wilder’s.
Does the RSI work on futures?
It can be worked out on any market with closing prices, including futures. What it shows is the same everywhere: recent gains against losses.
What’s the difference between RSI and stochastic?
The RSI compares gains with losses. The stochastic shows where the close sits in the recent high to low range.