What Is Relative Strength Index (RSI)?

The RSI was developed by J. Welles Wilder in 1978 and is most commonly calculated over 14 periods. To compute it, the average gain over the chosen period is first divided by the average loss to find relative strength (RS), which is then converted into the index with the formula 100 - 100 / (1 + RS). When the price has mostly risen recently, the value approaches 100; when it has mostly fallen, it approaches 0.

In the traditional interpretation, an RSI above 70 is considered the overbought zone and an RSI below 30 the oversold zone. Analysts also look for divergences: if the price makes a new high while the RSI forms a lower high, this is read as a sign that upward momentum is weakening. For example, if a coin's RSI on the daily chart climbs to 80, it indicates that the price has risen sharply in a short time.

The RSI is not a buy or sell signal on its own. In strong trends, the indicator can stay in the overbought or oversold zone for a long time, and taking a position in the opposite direction during that period can lead to losses. For this reason, the RSI is usually used together with other indicators such as trend lines, moving averages and volume, and it should be remembered that it can give different results across different timeframes.