What is the Relative Strength Index (RSI)?

Introduction to RSI

The Relative Strength Index (RSI) is a momentum oscillator used in technical analysis that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset.

Developed by J. Welles Wilder Jr. in 1978, the RSI is displayed as an oscillator (a line graph that moves between two extremes) and can have a reading from 0 to 100.

How is RSI Calculated?

The standard formula for RSI is based on a 14-period timeframe (typically 14 days):

RSI = 100 - [100 / (1 + (Average Gain / Average Loss))]

In Stock Monitor Pro, we calculate the RSI precisely using the standard exponential moving average smoothing for gains and losses over 14 days, providing an institutional-grade oscillator reading.

Interpreting RSI Levels

• Overbought (RSI > 70): When the RSI crosses above 70, the asset is generally considered overbought or overvalued. This may indicate a prime time for a pullback or trend reversal.
• Oversold (RSI < 30): An RSI reading below 30 indicates that the asset is oversold or undervalued. This is often interpreted as a signal that the downward momentum is exhausted, and a rebound may be imminent.
• Midline (RSI = 50): The 50 level acts as a centerline. A crossover above 50 suggests bullish momentum is building, while a crossover below 50 indicates bearish momentum.

Using RSI with MACD in Stock Monitor Pro

RSI is powerful, but relying on it alone can result in false signals during strong, sustained trends. That's why Stock Monitor Pro pairs RSI readings with MACD (Moving Average Convergence Divergence).

For example, if a stock shows an RSI of 25 (deeply oversold) but the MACD histogram is still accelerating downwards, our system may flag it as "Falling Knife" rather than a buy. Conversely, if RSI is 35 and MACD is showing a bullish crossover, our Trade Coach flags it as a high-probability "Oversold Bounce".