The Relative Strength Index (RSI) is a momentum oscillator used in technical analysis to measure the speed and magnitude of recent price changes. RSI helps traders identify whether a stock is overbought (likely to fall) or oversold (likely to rise), making it a powerful tool for spotting potential reversals or entry/exit points.
RSI values range from 0 to 100 and are typically plotted as a line below the main price chart.
Interpreting RSI Values
RSI Value
Interpretation
Above 70
Overbought — Price may correct
Below 30
Oversold — Price may bounce
Between 30–70
Neutral zone — Trend continuation
RSI doesn’t predict direction — it highlights extreme conditions where a reversal or pause may occur.
What Does RSI Tell You?
RSI above 70 → Asset has risen too quickly; pullback may be due
RSI below 30 → Asset has fallen sharply; bounce may occur
Divergences between price and RSI can signal a reversal
Example: RSI in Action
Stock: ABC Ltd.
RSI reaches 78 while price hits a new high → Potential profit booking ahead
RSI falls to 25 near a strong support zone → Watch for bounce or reversal
RSI Divergence – Hidden Signals
Type
What It Means
Bullish Divergence
Price makes lower lows, RSI makes higher lows → Possible upward reversal
Bearish Divergence
Price makes higher highs, RSI makes lower highs → Possible downward reversal
Divergences are most powerful at support/resistance zones.
Best RSI Settings for Traders
Use Case
RSI Setting
Timeframe
Swing Trading
14-period (default)
Daily / 1H chart
Scalping / Intraday
5–7 period
5min / 15min charts
Long-Term Investing
14 or 21 period
Weekly chart
RSI vs Other Indicators
Feature
RSI
MACD
Moving Averages
Type
Momentum oscillator
Trend + Momentum
Trend-following
Use
Identify extremes
Signal crossovers
Trend direction & support
Best For
Reversal spotting
Entry/Exit timing
Trend confirmation
Key Takeaways
RSI is a momentum indicator ranging from 0–100
RSI >70 = overbought, <30 = oversold
Helps identify potential trend reversals and entry/exit signals
Divergence between RSI and price is a strong reversal clue
Combine RSI with support/resistance zones for high-probability trades