What Is an RSI in Stocks?

The Relative Strength Index, or RSI, examines an asset’s price fluctuations against its momentum in the same period. Traders use RSI to evaluate a security’s relative value and future price potential based on recent price data. 

What is an RSI in stocks? 

The Relative Strength Index is a momentum oscillator that measures the speed and change of a security’s recent price fluctuations. (Momentum oscillators are technical indicators that move within a defined range, usually 0 to 100.) 

RSI looks at an asset’s recent price history to determine if an investment is overbought or oversold. RSI signals inform traders’ price predictions, which in turn impact their investment and trading decisions.  

While it’s possible to calculate the RSI manually, many investing services will do the hard work for you.  

Reading a stock’s RSI

A security’s RSI is typically presented as a graph, often below or overlaid a chart mapping the security’s prices. Effectively, this setup tracks a security’s momentum against its price over time.  

• The y-axis (vertical axis) maps the fluctuating RSI value, usually between 0 to 100. 
• The x-axis (horizontal axis) measures the time period in question, usually 14 days.

By visually comparing the RSI graph to price trends, investors can identify trading signals and patterns. 

Overbought vs. oversold signals

A security’s RSI is usually considered high if it reaches or exceeds 70. Readings over 70 suggest an overbought security, indicating that it could be time to sell.  

Conversely, a security’s RSI is usually considered low if it reaches or drops below 30. Readings under 30 suggest an oversold security, indicating that it could be time to buy.  

Typically, trading signals generated by an RSI carry more weight when values reach extremes or remain there for extended periods. That said, traders can also adjust overbought and oversold points to fit a particular situation. 

For instance, RSIs may remain in overbought or oversold territory for longer stretches during bull or bear runs. To compensate, an investor may raise or lower the security’s signal thresholds.  

Other RSI signals

RSI charts – and their relationship with their correlated price charts – can produce a range of other trends and signals, too. They can reveal:

• Divergences: An RSI trend moves in the opposite direction of a price trend. The type of divergence pinpoints whether a security’s momentum is bullish or bearish. 
• RSI reversals: A security’s RSI reaches a new recent high or low, while the price does not. 

• Positive RSI reversal (bullish signal): The RSI dips below its previous low, but the price remains higher than its previous low. 
• Negative RSI reversal (bearish signal): The RSI tops its previous high, but the price remains lower than its previous high. 

• Swing rejection: When an RSI exits overbought or oversold territory, only to swing back and surpass its most recent record. 

Don’t rely on a single indicator

A security’s RSI provides a method to visually compare its momentum and price. Like most indicators, RSI works best when incorporated into a larger strategy, as it’s not a foolproof predictive tool. (In other words, don’t make trading decisions based on RSI patterns and signals alone.)

Of course, if you really want to smarten up your investing game, Q.ai’s Investment Kits provide an AI-powered in. We scour the markets, analyze tons of data and make trading decisions – so you don’t have to.