The Relative Strength Index, or RSI, is a momentum indicator that moves between 0 and 100. It compares the strength of recent gains with recent losses to show whether upward or downward momentum has been stronger.
How RSI moves between 0 and 100
RSI summarizes recent momentum. The 30, 50 and 70 levels are reference zones, not automatic buy or sell instructions.
How RSI is commonly read
Traders often use 70 as an overbought reference and 30 as an oversold reference. RSI near 50 suggests momentum is more balanced. These are reference zones, not automatic trade instructions.
- Above 70: strong recent upward momentum.
- Around 50: mixed or balanced momentum.
- Below 30: strong recent downward momentum.
Why overbought can stay overbought
In a strong uptrend, RSI can remain above 70 while price continues rising. Selling only because RSI crossed 70 can exit too early. The same problem occurs when RSI stays below 30 during a strong decline.
RSI signals traders test
Common rule ideas include RSI crossing back above 30, crossing above 50, falling below 70, or diverging from price. Every version should be tested with a trend filter, exit rules and realistic costs.
Common mistakes
RSI is most useful when interpreted with market structure and trend. It becomes less reliable when treated as a stand-alone prediction tool.
- Using overbought as an automatic short signal.
- Ignoring the broader trend.
- Changing the period until the backtest looks perfect.
- Using the same settings on every symbol and timeframe without testing.
Frequently asked questions
What is the standard RSI setting?
RSI14 is a common default, but the period should be tested for the intended symbol and timeframe.
Is RSI above 70 a sell signal?
No. It indicates strong recent momentum and can remain elevated during a trend.
Can RSI be used for short trades?
Yes. Traders may test bearish momentum rules, but they still need trend, risk and exit conditions.