What Is the Relative Strength Index (RSI)?

How RSI Is Calculated

RSI is calculated over a default lookback period of 14 days. The formula compares the average gains on up days versus the average losses on down days over that period. RSI = 100 − (100 ÷ (1 + (Avg Gain / Avg Loss))). The result is a number between 0 and 100. A stock that has risen every day for 14 days would have an RSI near 100. A stock that has fallen every day would have an RSI near 0. In practice, RSI rarely reaches these extremes.

Reading Overbought and Oversold Levels

The 70/30 thresholds are reference points, not automatic buy or sell signals:

• RSI above 70 (overbought) — the stock has risen faster than usual; mean reversion is possible but not guaranteed. Momentum can persist in strong uptrends
• RSI below 30 (oversold) — the stock has fallen sharply; a technical bounce is possible but the downtrend may continue
• RSI around 50 — neutral momentum, neither extreme
• In strong bull trends, RSI can stay above 70 for weeks. In strong downtrends, it can stay below 30. Overbought/oversold alone is not enough to act on

RSI Divergence: The More Useful Signal

RSI divergence occurs when the price makes a new high but RSI makes a lower high, or when price makes a new low but RSI makes a higher low. This divergence suggests momentum is weakening even as price continues in one direction — often a precursor to a reversal. Bearish divergence (price up, RSI down) is considered a warning sign at market tops. Bullish divergence (price down, RSI up) can signal a bottoming process.

Limitations of RSI

RSI is a backward-looking indicator based purely on price history. It tells you nothing about fundamentals, earnings quality, or the business. In trending markets, RSI gives many false overbought/oversold signals. A stock can be "overbought" at RSI 75 and go on to reach RSI 90 as the trend continues. RSI is most useful as a secondary confirmation tool alongside fundamental analysis and trend direction — not as a standalone trading signal. GlobalTrack flags extreme RSI readings as part of its volatility risk factor because they often coincide with elevated near-term risk.