What Is the Relative Strength Index (RSI)?
RSI measures how fast and how far a price has moved recently, on a scale of 0 to 100. Here is exactly how it is calculated, what the levels mean, and where it fails.
RSI in one paragraph
The Relative Strength Index was introduced by J. Welles Wilder Jr. in 1978. It compares the average size of recent up-days to the average size of recent down-days over a lookback window, 14 periods by default. If gains have dominated, RSI is high. If losses have dominated, RSI is low. It is a momentum oscillator: it tells you about the speed of a move, not its direction in the future.
The formula
RS = Average Gain / Average Loss (over 14 periods) RSI = 100 − 100 / (1 + RS)
After the first 14 periods, Wilder's method smooths the averages instead of re-averaging: new avg = (previous avg × 13 + current value) / 14. Stock Monitor Pro uses this standard smoothing.
Worked example: your first RSI value
Here are 15 illustrative closing prices (made up for teaching, not a real stock). That gives 14 daily changes.
| Day | Close | Change | Gain | Loss |
|---|---|---|---|---|
| 1 | 51.00 | +1.00 | 1.00 | 0.00 |
| 2 | 50.50 | -0.50 | 0.00 | 0.50 |
| 3 | 52.00 | +1.50 | 1.50 | 0.00 |
| 4 | 51.00 | -1.00 | 0.00 | 1.00 |
| 5 | 50.00 | -1.00 | 0.00 | 1.00 |
| 6 | 49.00 | -1.00 | 0.00 | 1.00 |
| 7 | 49.50 | +0.50 | 0.50 | 0.00 |
| 8 | 48.00 | -1.50 | 0.00 | 1.50 |
| 9 | 47.00 | -1.00 | 0.00 | 1.00 |
| 10 | 48.00 | +1.00 | 1.00 | 0.00 |
| 11 | 47.50 | -0.50 | 0.00 | 0.50 |
| 12 | 46.00 | -1.50 | 0.00 | 1.50 |
| 13 | 45.50 | -0.50 | 0.00 | 0.50 |
| 14 | 46.50 | +1.00 | 1.00 | 0.00 |
Sum of gains = 5.00, so average gain = 0.3571. Sum of losses = 8.50, so average loss = 0.6071.
RS = 0.3571 / 0.6071 = 0.5882. RSI = 100 − 100 / (1 + 0.5882) = 37.0. The series drifted down with only small bounces, so RSI is below 50 and shows bearish momentum, but it is not yet in oversold territory (below 30).
What RSI 30 and RSI 70 really mean
- RSI below 30 (oversold): recent selling has been heavy and fast. It does not mean the price is cheap. In a strong downtrend RSI can stay below 30 for weeks.
- RSI above 70 (overbought): recent buying has been heavy and fast. In strong uptrends RSI often sits at 70–80 while the price keeps climbing.
- The 50 line: RSI holding above 50 generally goes with an uptrend, and below 50 with a downtrend. Many traders use 40–50 as the pullback zone in uptrends.
Three ways traders use RSI
- Pullback entries in an uptrend. Require price above the 200 EMA first, then look for RSI dipping toward 30–40 and turning up.
- Divergence. Price makes a lower low but RSI makes a higher low, a sign that selling momentum is fading. It is a warning, not a trigger.
- Screening. Use RSI to narrow thousands of stocks to a short watchlist, then do the real analysis on each.
Where RSI fails
RSI gives repeated false "oversold" readings in a persistent downtrend and false "overbought" readings in a persistent uptrend. It is also blind to news: a stock can be oversold because of a fraud investigation. Always combine it with trend (EMAs), momentum confirmation (MACD) and the reason for the move.
See it on live data
Today's lowest-RSI stocks are on the oversold stocks scanner, and highest-RSI setups are on the overbought stocks scanner. For Canadian names use the TSX scanner. Any ticker's current RSI is on its page, for example AAPL or NVDA.
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Educational content only, not investment advice. Worked examples use illustrative numbers. See our disclaimer.