RSI
Relative Strength Index
The Relative Strength Index (RSI) is one of the most widely used momentum oscillators in technical analysis. Developed by J. Welles Wilder in 1978, it measures the speed and magnitude of recent price changes to identify overbought or oversold conditions.
How It Works
RSI compares the average gains and average losses over a specified period (typically 14 periods) and normalises the result to a 0–100 scale. When recent gains are larger than recent losses, RSI rises; when losses dominate, RSI falls.
Formula
RSI = 100 - [100 / (1 + RS)] where RS = Average Gain / Average Loss over the last N periods (default: 14)
Signal Interpretation
When RSI exceeds 70, the asset may be overbought and due for a pullback. Strong uptrends can sustain RSI above 70 for extended periods.
When RSI falls below 30, the asset may be oversold and due for a bounce. In strong downtrends, RSI can remain below 30 for a long time.
Price makes a lower low but RSI makes a higher low — signals weakening downtrend and possible reversal.
Price makes a higher high but RSI makes a lower high — signals weakening uptrend and possible reversal.
Use Cases
- ▸Identifying overbought/oversold levels for swing trades
- ▸Confirming trend reversals with divergence
- ▸Filtering screener results — RSI 45-65 for steady momentum
- ▸Timing entries within a known trend
Limitations
- ⚠In strong trends, RSI can stay overbought/oversold for long periods
- ⚠Not suitable as a standalone system — best used with trend filters
- ⚠Lag exists due to the averaging mechanism
On BazaarPulse, RSI values of 55–75 suggest healthy momentum without being over-extended. Pair RSI with MACD for higher-conviction entries.