Relative Strength Index (RSI)
The Relative Strength Index (RSI) is a 0 to 100 oscillator that compares the size of recent up-closes with recent down-closes, usually over 14 bars.
How Relative Strength Index is calculated
Over n bars, find the average gain and average loss (Wilder's smoothing). RS = average gain / average loss. RSI = 100 - 100 / (1 + RS). If there were no losses in the window, RSI is 100. J. Welles Wilder published it in 1978.
How it is read
Readings above 70 are called overbought and below 30 oversold. Some traders use 50 as the line between rising and falling momentum. Short versions such as RSI(2) swing between the extremes far more often.
Common mistakes
- Selling because RSI passed 70. In a strong trend it can stay there for weeks.
- Using one threshold on every asset. Volatile assets spend more time at the extremes.
- Mixing lengths. RSI(14) on a 5-minute chart and a daily chart describe different things.
Test it yourself
Pick RSI with a length such as 14 and compare it with a constant, for example RSI is below 30. The Lab charges trading costs on every trade, fills on the next day's open, and shows how many attempts you have made.
What Tickfloor tested
Tickfloor's research desk has backtested 678 strategies, net of modelled trading costs. After correcting for the 761 tests run, 0 passed. That does not prove no strategy works. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.
- RSI Trading Strategy (claim test)
- RSI(2) Mean Reversion (claim test)
- MACD + RSI Confluence (claim test)
Lessons that cover it
Related concepts
General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.