RSI Indicator Explained
The RSI is a momentum oscillator from 0 to 100 that measures how fast and how far price has moved, flagging overbought and oversold conditions.
How RSI works
The Relative Strength Index compares the size of recent gains to recent losses over a lookback (classically 14 periods) and maps it to a 0–100 scale. Readings above 70 are traditionally overbought and below 30 oversold.
The catch: in a strong trend RSI can stay overbought or oversold for a long time. Treat the levels as 'momentum is stretched', not automatic reversal signals — fading a trend on RSI alone is a common way to lose.
Divergence — the useful part
The higher-value RSI signal is divergence: price makes a higher high but RSI makes a lower high (bearish divergence), or price makes a lower low while RSI makes a higher low (bullish divergence). It warns that momentum is fading beneath the surface.
Confirm divergence with market structure and a level — a bullish divergence at support after a liquidity sweep is far stronger than divergence in isolation.
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Play Chart Bound free → Try today's Call the Candle →Frequently asked questions
What does RSI measure?
RSI measures momentum — the speed and size of recent price gains versus losses — on a 0 to 100 scale, with 70+ overbought and 30- oversold by convention.
Is RSI above 70 a sell signal?
Not on its own. In strong trends RSI can stay above 70 for a long time. It flags stretched momentum, but needs confirmation before acting.
What is RSI divergence?
When price and RSI disagree — e.g. price makes a higher high but RSI makes a lower high. It warns that momentum is weakening and a reversal may be near.