Origin
The Relative Strength Index (RSI) was created by J. Welles Wilder in 1978. It compares the magnitude of recent gains to recent losses to output a value between 0 and 100.
Standard Settings
- Period: 14
- Overbought threshold: 70
- Oversold threshold: 30
Signals
- **Overbought (>70)**: potential exhaustion — not a sell signal on its own
- **Oversold (<30)**: potential exhaustion — not a buy signal on its own
- **Bullish divergence**: price makes lower lows while RSI makes higher lows
- **Bearish divergence**: price makes higher highs while RSI makes lower highs
- **Centreline (50) cross**: momentum shift
Using RSI Correctly
- In trending markets, RSI can stay overbought/oversold for a long time
- Use RSI with structure and price action, not in isolation
- Divergences work best at established support/resistance
Adjustments for Style
- 21-period RSI smooths noise for swing traders
- 5–7 period RSI is faster for scalping but noisier
Key Takeaways
- RSI measures momentum, not direction.
- Overbought ≠ sell; oversold ≠ buy.
- Divergences at key levels are among the highest-quality signals.