JustChartsWhat Is the RSI Indicator? How to Read RSI 70 and 30
The Relative Strength Index (RSI) is a momentum indicator that compares recent gains with recent losses on a scale of 0 to 100, usually over 14 periods. Readings above 70 are traditionally called overbought and below 30 oversold. RSI shows momentum, not a guaranteed reversal: in strong trends it can stay above 70 or below 30 for a long time.
Key facts
- Created by
- J. Welles Wilder Jr. (1978)
- Default setting
- 14 periods
- Overbought
- above 70
- Oversold
- below 30
- Formula
- RSI = 100 − 100 ÷ (1 + average gain ÷ average loss)
How RSI is calculated
RSI = 100 − 100 ÷ (1 + RS), where RS = average gain ÷ average loss over the period
Wilder used a smoothed average, so recent bars matter most but older bars still count. If the average gain equals the average loss, RS = 1 and RSI = 50.
How to read RSI
- Above 70: price has risen fast; momentum is strong — the market may be stretched.
- Below 30: price has fallen fast — possibly stretched to the downside.
- Around 50: no clear momentum. In uptrends RSI often holds above 40–50; in downtrends it often stays below 50–60.
RSI divergence
A bearish divergence is when price makes a higher high but RSI makes a lower high — momentum is fading. A bullish divergence is a lower low in price with a higher low in RSI. Divergences are warnings, not entry signals; they can persist through several swings.
Common RSI mistakes
- Selling every time RSI hits 70. In strong trends RSI can stay overbought for weeks.
- Ignoring the timeframe. RSI on a 5-minute chart and on a daily chart can disagree completely.
- Using it alone. RSI works better combined with support and resistance and the overall trend.
Frequently asked questions
What does RSI 70 mean?
An RSI above 70 is traditionally considered overbought — price has risen quickly relative to recent losses. It is a sign of strong momentum, not a guaranteed top.
What is the best RSI setting?
The default of 14 periods is the most widely used. Shorter settings react faster but give more false signals; longer settings are smoother.
Is RSI good for day trading?
It can help gauge short-term momentum, but on low timeframes it gives many false signals, so traders usually combine it with levels and trend.
What is RSI divergence?
When price and RSI move in opposite directions — for example price makes a new high but RSI does not — suggesting momentum is weakening.
Put it into practice
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Add RSI to a live chartThis article is for education only and is not financial advice. Trading leveraged products carries a high risk of losing money. Contract sizes, trading hours and leverage limits vary by broker and country — always check your own broker’s specifications.