What Is RSI? The RSI Indicator Explained, From Formula to Divergence
RSI (the Relative Strength Index) is a momentum indicator that shows how strong and fast recent price moves have been on a scale from 0 to 100. J. Welles Wilder introduced it in 1978, and it is still one of the most widely used technical analysis tools. This guide covers how RSI is calculated, what 70, 30 and the 50 line tell you, what RSI divergence is, and why none of them is a sure buy or sell signal.
What is RSI and what does it measure?
RSI is a momentum oscillator: instead of the price itself, it measures how forceful recent price moves have been. When recent up moves have been larger and more frequent than down moves, RSI rises, and the other way round.
RSI is usually drawn in a separate panel under the price chart and always stays between 0 and 100. That fixed range lets you read a cryptocurrency, gold or a stock in the same terms.
Keep one thing in mind from the start: technical analysis, RSI included, describes past price behaviour and probabilities. It is not a reliable prediction of the future and, on its own, not a reason to buy or sell.
How is RSI calculated? The formula in plain words
RSI compares the average gain with the average loss over a number of recent periods. Wilder's default is 14 periods, meaning the last 14 candles, whether they are daily or hourly.
The steps look like this:
What a candlestick chart is and where the close sits
- For each period, take the closing price minus the previous close; a positive result is a gain, a negative one a loss.
- Average the gains and the losses of the last 14 periods separately (count losses as positive numbers).
- Compute RS: RS = average gain ÷ average loss.
- Compute RSI: RSI = 100 − 100 / (1 + RS).
RSI overbought and oversold: what do 70 and 30 mean?
In the classic reading, RSI above 70 means "overbought" and RSI below 30 means "oversold". Overbought means the price has risen sharply in a short time; oversold means it has fallen sharply.
These levels describe the intensity of a move, not an instruction. RSI above 70 does not mean "sell now", and RSI below 30 does not mean "buy now". The table shows the common reading of each zone and the caution that goes with it.
| RSI range | Common reading | Caution |
|---|---|---|
| 70 to 100 | Overbought; a sharp, strong rise | In a strong uptrend RSI can stay above 70 for a long time |
| 50 to 70 | Positive momentum; buyers have had the upper hand | Above 50 does not guarantee the rise continues |
| Around 50 | Rough balance between gains and losses | In a sideways market RSI crosses 50 again and again |
| 30 to 50 | Negative momentum; sellers have had the upper hand | Below 50 does not mean the fall must continue |
| 0 to 30 | Oversold; a sharp, strong fall | In a strong downtrend RSI can stay below 30 for a long time |
Why can overbought stay overbought?
In a strong uptrend, gains keep outweighing losses, so RSI can sit above 70 for weeks while the price keeps climbing. Anyone who trades against the trend just because RSI reads 70 can be wrong many times in a row.
That is why some analysts move the thresholds to 80 and 20 in strong trends, or watch for RSI leaving the extreme zone rather than the number itself. None of these tweaks removes errors; they only change what the errors look like.
What does the RSI 50 line tell you?
The 50 line is the border between positive and negative momentum. RSI above 50 means the average gain was larger than the average loss over the calculation period; below 50 means the opposite.
Many people read a cross of 50 as a shift in momentum. In a flat, trendless market, though, RSI keeps wobbling around 50 and those crosses mean little.
What is RSI divergence, and how reliable is it?
RSI divergence is when price and RSI move in opposite directions. The two common types and their caveats:
- Bearish divergence: price makes a higher high while RSI makes a lower high, so the latest rise happened with less force.
- Bullish divergence: price makes a lower low while RSI makes a higher low, so the latest fall had less force behind it.
- Divergence only shows fading momentum, not when price will turn. In strong trends several divergences can form in a row while price keeps going the same way.
- Check divergence after a candle closes; one that appears mid-candle can disappear by the close.
Best RSI settings and timeframes
There is no single best setting for everyone. 14 periods is the default; a shorter period makes RSI more sensitive and jumpy, a longer one makes it smoother and slower.
The timeframe changes the picture too. Hourly RSI can read overbought while daily RSI for the same asset sits mid-range. Many people check the longer timeframe first to see the bigger picture.
On small coins with thin liquidity and a low market cap, a few large trades can swing RSI hard, so readings on those assets are even less dependable.
Combining RSI with support, resistance and candlesticks
RSI shows just one angle of the market. Analysts usually read it alongside support and resistance levels and candle behaviour, to see whether several independent clues point the same way.
For example, if a coin reaches a level it has bounced from several times before, RSI is in the oversold zone and a reversal candle appears, the picture is clearer. Even that agreement only describes a probability and can still turn out wrong.
RSI limitations, and RSI in Waletifi
RSI is built from past prices, so it always lags the market a little. It cannot see news, rule changes or sudden shocks, and in volatile crypto markets it gives plenty of false signals. Make any financial decision with your own risk and means in mind.
Waletifi is a wallet, not a trading platform, and it does not show candlestick charts or indicators such as RSI. The app's Market tab and the site's price pages show live prices with the 24-hour change and line charts; the site's price pages have a 7-day chart and the gold screen has daily to yearly charts. If you would rather not stare at charts, a price alert tells you when an asset reaches a price you chose or moves by a set percentage within 24 hours.
