What RSI measures and why traders watch it
A stock rips 30% in three weeks and your gut screams two things at once: ride the momentum, or it's about to snap back. The Relative Strength Index turns that gut feeling into a number between 0 and 100. RSI measures the speed and size of recent price moves to answer one question: has this stock been bought so hard, or sold so hard, that a reversal is getting likely?
The mechanics are precise. RSI compares the average size of up-day gains to the average size of down-day losses over a lookback window, usually 14 periods. The formula is RSI = 100 minus (100 divided by (1 plus RS)), where RS is the average gain divided by the average loss. The result lands on a fixed 0-to-100 scale, which is what makes RSI so easy to read across any stock, index, or timeframe.
The thresholds everyone watches. Developed by J. Welles Wilder in 1978, RSI uses two classic levels:
- RSI above 70 (overbought): the asset has rallied hard and may be due for a pullback or consolidation.
- RSI below 30 (oversold): the asset has dropped sharply and may be due for a bounce.
- RSI near 50: momentum is balanced, with neither buyers nor sellers in clear control.
Here is what separates a beginner from a tactician. Overbought does not mean sell, and oversold does not mean buy. In a powerful uptrend, RSI can sit above 70 for weeks while the stock keeps climbing, and traders who shorted the first overbought reading got run over. The signal is most reliable in range-bound, sideways markets, where price keeps bouncing between support and resistance. In a strong trend, RSI is better used to spot pullback entries, like buying a brief dip to RSI 40 inside an uptrend, than to bet on a top.
Paste your closing prices above, set the period, and the calculator runs the full averaging math for you, so you get the exact RSI value instead of eyeballing a chart.