GLOSSARY // Technical Analysis
RSI (Relative Strength Index)
RSI is a momentum oscillator that measures the speed of recent price changes on a 0-100 scale, calculated over 14 periods by default. The formula is RSI = 100 - 100 / (1 + RS), where RS is the average gain divided by the average loss over the lookback window. Readings above 70 are conventionally labeled overbought and readings below 30 oversold.
The thresholds are context-dependent, and this is where most new users get hurt: in a strong uptrend, RSI can sit above 70 for weeks while the stock keeps climbing, and in a collapse it can pin below 30 all the way down. Selling something just because RSI printed 72 is betting against the trend with no other evidence.
The higher-quality signals come from divergence, where price makes a new extreme but RSI does not, and from regime shifts, such as RSI holding above 40 on every pullback in a healthy uptrend.
A stock drops from 90 to 74 in nine sessions and the 14-day RSI reads 24. Price then makes a marginally lower low at 73.10 while RSI prints 31, a higher low: bullish divergence. The bounce carries to 81. In the same stock's earlier rally, RSI spent 16 straight sessions above 70 while price rose another 12%, which is why the 70 line alone was not a sell signal.
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Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.