Relative Strength Index
RSI is one of the most widely used momentum oscillators: it compresses the balance of buying vs. selling pressure over a lookback window into a single 0–100 reading, helping you spot when a market has moved "too far, too fast".
What it is
The Relative Strength Index (RSI) measures the relative strength of up-moves versus down-moves over a set number of periods. It does not care where the price is — only how hard it has been rising compared with how hard it has been falling — and squeezes that ratio into a 0–100 scale. Readings near 100 mean buying pressure dominates; readings near 0 mean selling pressure dominates. Traders use RSI to locate overbought and oversold conditions and to spot divergences between price and momentum.
Origin
RSI was introduced by American technical analyst J. Welles Wilder in his 1978 book "New Concepts in Technical Trading Systems" — the same book that gave traders ATR and Parabolic SAR. Wilder's original settings, a 14-period lookback with 70/30 thresholds, remain the industry default to this day, making RSI one of the most used oscillators in the world.
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Download FreeThe formula
RSI is computed in two steps — the ratio of average gains to average losses (RS), then a normalization to 0–100:
The default lookback is 14. "Average" uses Wilder's smoothing (an exponential-style average): the first value is a simple average of the first 14 bars, and each new value = (previous average × 13 + current change) ÷ 14. As a result, RSI reacts to a single huge candle gradually instead of jumping straight to an extreme.
Worked example
A quick worked example with round numbers:
- Over a 14-period window, the average up-move is 2% and the average down-move is 1%.
- RS = 2 ÷ 1 = 2 (upward pressure is twice as strong).
- RSI = 100 − 100 ÷ (1 + 2) = 100 − 33.3 ≈ 66.7.
RSI ≈ 66.7 — "strong but not yet overbought" (below 70). Notice: when average gains equal average losses, RSI is exactly 50 (equilibrium); the bigger the ratio, the higher the RSI — but it can never reach 100, which is why extreme readings are rare and worth attention.
How to read it
Reading the scale:
| Range | Common interpretation |
|---|---|
| 0 – 30 | Oversold: selling pressure dominates. Bounces often start here, but in a downtrend RSI can stay pinned near the bottom |
| 30 – 50 | Weak side: sellers in control; rallies often stall near 50 |
| Around 50 | Equilibrium: in a trend, the 50 line acts as momentum confirmation (pullbacks that hold above 50 keep the uptrend intact) |
| 50 – 70 | Strong side: buyers in control; dips toward 50 often find support |
| 70 – 100 | Overbought: buying pressure is stretched. Strong stocks can stay here for weeks — not a standalone short signal |
Overbought does not mean "will drop now", and oversold does not mean "will bounce now". The 70/30 lines flag stretched momentum, not trade instructions — in a strong trend RSI can stay above 70 for weeks, which is exactly where beginners get hurt (see pitfalls below).
Common signals & usage
Crossing 70 / 30
RSI turning up from below 30 is commonly read as a bounce signal; falling back below 70 hints weakening upside momentum. Raw crosses are noisy — most traders wait for RSI to re-enter the range before acting.
The 50 line as trend confirmation
In an uptrend, pullbacks that stabilize in the 40–50 zone and turn back up without a decisive break of 50 support trend continuation; the mirror applies in downtrends.
Divergence (the classic use)
Price makes a higher high but RSI does not → bearish divergence (fading momentum). Price makes a lower low but RSI does not → bullish divergence. Divergence only flags a disagreement between price and momentum; wait for price itself to confirm (break of structure) before acting.
Failure Swing (Wilder's own signal)
RSI pushes above 70, pulls back without reaching 30, then fails to exceed its prior high — a bearish failure swing. The bullish version mirrors it around 30. It relies on RSI structure alone, not on price patterns.
Limitations & common mistakes
- Shorting just because RSI is overbought is the classic mistake: in strong trends RSI can stay above 70 for weeks (mega-cap rallies are famous for it) — fading it means fighting the trend.
- Oscillators fail in trending markets: in a one-way move, every 30/70 cross is noise. RSI works best in ranges; in trends, switch to trend-following tools or wait for pullbacks.
- Parameters matter: 14 is Wilder's default. Dropping to 7 makes it twitchy; 21–25 makes it smoother but slower. Know what you want before tuning.
- Divergences need confirmation: after a divergence, price can keep running in the old direction for a long time — entering on the divergence alone often gets stopped out.
- Different instruments have different "normal" ranges: high-volatility names (crypto, for example) hit extremes more often, so mechanically applying 70/30 misjudges them.
RSI in MT5
In MetaTrader 5, RSI is a built-in oscillator you can drag onto a sub-window from the Navigator. The MQL5 function for programmatic use is iRSI:
| MQL5 function | iRSI() |
| Default period (ma_period) | 14 |
| Default applied price | PRICE_CLOSE |
| Chart menu path | Insert → Indicators → Oscillators → Relative Strength Index |
| Display window | Sub-window (0–100 with 30 / 50 / 70 guides) |
The built-in MT5 version follows Wilder's smoothing exactly. If your RSI readings differ from another platform, first compare period and applied-price settings, then check whether a third-party custom indicator with a different smoothing algorithm is involved.
Behavior across timeframes
15-minute
Noisiest: 70/30 gets crossed constantly; intraday traders often widen thresholds to 80/20 to cut false signals
1-hour / 4-hour
The main playground for day-to-swing trading: a reasonable balance between signal frequency and reliability, with clearer divergence structures
Daily
Wilder's original setting — the classic 70/30 thresholds belong here; daily divergences generally carry more weight than lower timeframes
Weekly
Extremes are rare but heavy: a weekly divergence often marks a momentum turn that plays out over months
Indicator combinations
In practice RSI is rarely used alone. Common pairings:
- With MACD: MACD reads trend direction and momentum shifts, RSI reads stretched extremes — signals align with higher confidence when both agree. MACD
- With Bollinger Bands: price tagging the upper band while RSI is overbought is far more meaningful than either condition alone; same for the lower band. BOLL
- With moving averages: let the MA define trend direction and use RSI only to find pullback entries in that direction (in an uptrend, only look at RSI dips into 40–50). MA
Symbols commonly watched with RSI
Symbol pages that list this indicator as a common tool:
FAQ
Q What RSI level is overbought or oversold?
The traditional standard from Wilder's original work is above 70 for overbought and below 30 for oversold, on a 14-period setting. These are alert lines, not trade instructions: in a strong trend RSI can stay above 70 for a long time. On volatile instruments or lower timeframes, many traders widen to 80/20 to filter noise.
Q What is an RSI divergence?
A divergence is a disagreement between price and RSI: price makes a new high while RSI does not (bearish — momentum fading), or price makes a new low while RSI does not (bullish — selling pressure exhausting). Divergences flag a weakening trend, not an exact reversal time; wait for price to confirm with a break of structure.
Q What does the RSI period of 14 mean?
The 14 is the lookback window: on a daily chart RSI compares the average gain and average loss of the last 14 days. It is Wilder's original 1978 setting and the default in MT5 and every major platform. Smaller (7) = more responsive but noisier; larger (21) = smoother but slower.
Q How is RSI different from Stochastic (KDJ)?
Both are 0–100 momentum oscillators, but they measure different things: RSI is based on the ratio of average gains to losses, while Stochastic is based on where the close sits inside the recent high-low range. Stochastic reacts faster to short-term turns but with more noise; RSI is smoother and is generally preferred for divergence analysis. Many traders use both and look for agreement.
Q How do I add RSI in MT5?
Menu: Insert → Indicators → Oscillators → Relative Strength Index, or drag it from the Navigator onto the chart. It renders in a sub-window with default settings of period 14 and applied price CLOSE; you can change the period and add custom levels in its parameters tab.
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