Relative strength index

What the numbers mean

Fourteen is the lookback — RSI averages the size of the up closes and the down closes over the last 14 bars and expresses the up share on a 0–100 scale. The setting is the whole personality of the indicator: at 14 a stock reaches 70 or 30 only occasionally, at 7 it hits both extremes weekly, and at 21 or 25 it rarely reaches either. Wilder chose 14 for daily charts in 1978 and the default has barely moved since; 2- and 3-period RSI is a separate short-term style.

• 14 — Wilder's default; reaches 70 or 30 only a handful of times a year on a daily chart
• 9 or 7 — roughly twice as reactive; hits extremes weekly, used intraday
• 21 or 25 — smoother; rarely reaches extremes, used to read trend health rather than turns
• 2 or 3 — a distinct short-term mean-reversion style; extremes appear almost daily
• 70 / 30 — the conventional overbought and oversold lines
• 80 / 20 — stricter lines used in strong trends to cut false signals
• 50 — the midline; which side RSI holds says who is in control

How it is used

Read three ways: the extremes (above 70 overbought, below 30 oversold), the midline (holding above 50 through pullbacks is a sign of a healthy uptrend), and divergence — price making a higher high while RSI makes a lower one, meaning the second push had less force behind it.

• Above 70 → stretched to the upside; below 30 → stretched to the downside
• Holding above 50 through pullbacks → an uptrend in good health
• Failing at 50 from below → a downtrend reasserting itself
• Price making a higher high while RSI makes a lower high → bearish divergence
• RSI reaching 70 for the first time after a base → usually strength, not a top

How it relates to everything else

RSI answers “how stretched?” and nothing else, which makes it almost useless alone and genuinely useful in combination. The standard fix for its biggest flaw — screaming overbought throughout a strong trend — is to filter it by trend: take oversold readings only while price is above the 200-day moving average, and overbought readings only while below it. Against MACD it plays the early warning, since RSI flags the stretch while MACD confirms the turn has actually happened.

• RSI oversold + price above the 200 SMA → the classic buy-the-dip filter
• RSI divergence + MACD crossover → warning followed by confirmation
• RSI + ADX below 20 → range conditions, where 70/30 signals work best
• RSI + ADX above 25 → trend conditions, where 80/20 lines are safer
• StochRSI measures RSI's own range, so it turns earlier and far noisier
• MFI is RSI with volume added — when they disagree, volume is not confirming the move

What to watch for

Overbought is not a sell signal. Strong trends pin RSI above 70 for weeks, and the traders fading every reading get run over; divergences can also repeat several times before price responds, if it ever does.