Relative strength index (RSI)
A momentum oscillator that compares recent gains with recent losses and shows the result on a scale from 0 to 100.
What the RSI is.
A single line under the price chart that measures the speed and size of recent price moves.
The relative strength index, or RSI, is a momentum oscillator. Momentum is how fast price is moving. An oscillator is a line that swings between fixed limits.
The RSI compares the size of recent up moves with the size of recent down moves. The answer is drawn as a line between 0 and 100.
Readings above 70 are usually called overbought, and readings below 30 oversold. These words describe a fast move. They do not mean price has to turn.
How it is calculated.
Four steps, repeated on every new bar. Your platform does the maths for you.
Split each move into a gain or a loss.
Compare each close with the one before. A higher close counts as a gain, and a lower close counts as a loss.
Average the gains and the losses.
Take the average gain and the average loss over the last 14 periods. Wilder smoothed these averages, so each new bar only nudges them.
Divide one by the other.
The average gain divided by the average loss gives the relative strength, or RS. The larger the gains compared with the losses, the higher the RS.
Turn it into a 0 to 100 scale.
The formula below squeezes RS into a range from 0 to 100. If every move was a gain, the RSI reads 100. If every move was a loss, it reads 0.
RSI = 100 − 100 ÷ (1 + RS)
Wilder smoothing: new average = (previous average × 13 + latest gain or loss) ÷ 14
How to read it.
Four ways traders use the RSI. Each works better alongside other evidence.
| Reading | What it describes | What it does not mean |
|---|---|---|
| Above 70 | Gains have far outweighed losses over the period. | That price has to fall. |
| Around 50 | Gains and losses have been about the same size. | That the market has no trend at all. |
| Below 30 | Losses have far outweighed gains over the period. | That price has to rise. |
Overbought and oversold.
Above 70, recent gains dominate. Below 30, recent losses dominate. In a sideways market, these readings sometimes come before a pause or a turn.
Strong trends stay stretched.
In a powerful uptrend, the RSI can sit above 70 for weeks. Selling only because it reads overbought can mean standing in front of the trend.
Divergence.
Divergence is when price and the RSI disagree. Price makes a higher high while the RSI makes a lower high. It suggests the move is losing momentum.
Failure swings.
Wilder also watched the RSI line on its own. Above 70, it falls back, fails to make a new high, then breaks its recent low. The mirror image applies below 30.
Common mistakes.
Where traders new to the RSI most often go wrong.
Selling every reading above 70. In a strong uptrend, overbought can stay overbought for a long time.
Buying every reading below 30. A falling market can keep falling while the RSI stays low.
Trading divergence on its own. It can last for many bars before price turns, and sometimes price does not turn at all.
Shortening the period without rethinking the levels. A 5-period RSI reaches 70 and 30 far more often than a 14-period one.
Ignoring the timeframe. An RSI on a 5-minute chart and one on a daily chart describe very different moves.
Using it on MetaTrader 5.
The RSI is one of MT5’s built-in indicators, on desktop, web and mobile.
Open a chart.
In MetaTrader 5, open the instrument and timeframe you want to study.
Add the indicator.
Go to Insert, then Indicators, then Oscillators, and choose Relative Strength Index.
Check the settings.
The default period is 14, applied to the close. The 70 and 30 levels are already drawn, and you can change them on the Levels tab.
Save it as a template.
Right-click the chart, choose Templates, then Save Template, so the same set-up opens on other charts.
Questions, answered.
What traders ask most about the RSI.
01Who created the RSI?
02What period should I use?
03Does overbought mean price will fall?
04How is the RSI different from the stochastic oscillator?
05Can I practise with it first?
Practise it on a demo.
Add the RSI to a chart on a free MT5 demo and watch how it behaves before you trade with real money.
Trading CFDs on a live account puts your capital at risk and you can lose money. A demo does not.