What is the Relative Strength Index (RSI)?

The Relative Strength Index is a momentum indicator is used in technical analysis. It measures the magnitude of recent price changes to assess overbought or oversold conditions in the price of a stock or other asset. It is displayed as an oscillator (a line chart that moves between two extremes) and can have a value between 0 and 100. The indicator was originally developed by J. Welles Wilder Jr. and introduced in 1978 in his seminal book “New Concepts in Technical Trading Systems”.

Traditionally, the Relative Strength Index has been interpreted and used to mean that values of 70 or above indicate that a security is overbought or overvalued and may be poised for a trend reversal or corrective price decline. An RSI reading of 30 or below indicates an oversold or undervalued condition.

The major trend of the stock or asset is an important tool to ensure that the values of the indicator are properly understood. For example, well-known market technician Constance Brown, CMT, argues that an oversold RSI reading in an uptrend is likely much higher than 30% and that an overbought RSI reading in a downtrend is much lower than 70%.