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Relative Strength Index

RSI · module 14 of 33 · momentum

The ratio of average gains to average losses over n candles, scaled 0–100.

Relative Strength Index on a chart
EUR/USD · 1h · demo data
Leaves overboughtLeaves oversold1.09051.0791RSI (14)705030
  • RSI
  • ▲/▼ where the rule triggers

Above 70 is stretched, below 30 is washed out — in a strong trend RSI can stay there, so wait for it to exit the zone.

How to apply it

  1. 1. Add it. Start with 7–9 on 1m/5m (Scalping).
  2. 2. Read the market first. In an uptrend RSI typically holds 40–80; a dip to 40–45 marks a pullback rather than a sell signal, and readings above 70 can persist for weeks.
  3. 3. Adjust for ranges. Readings above 70 and below 30 at confirmed range boundaries are the intended reversion use.
  4. 4. Manage the trade. Place the stop at 1.5 × ATR and the target at 3.5 × ATR, and only act when the chart above shows the trigger.

How it is calculated

RS = average gain ÷ average loss over n; RSI = 100 − (100 ÷ (1 + RS)).

Inputs

  • · Period (14)
  • · Overbought/oversold levels (70/30)

Reading it correctly

In a trend

In an uptrend RSI typically holds 40–80; a dip to 40–45 marks a pullback rather than a sell signal, and readings above 70 can persist for weeks.

In a range

Readings above 70 and below 30 at confirmed range boundaries are the intended reversion use.

Settings by style

StyleSuggested values
Scalping7–9 on 1m/5m
Intraday14 on 15m, levels 70/30
Swing14 on 4h, levels 60/40 in trends

These are conventional starting points, not optimised values. Test any change on your own pair and timeframe before relying on it.

Worked example

Over 14 candles the average gain is 0.0012 and the average loss 0.0006. RS = 2.0, so RSI = 100 − (100/3) = 66.7. Momentum is clearly up but not at the conventional overbought line.

When it failed

During a strong USD/JPY uptrend, RSI(14) first exceeded 70 at 148.20 and stayed above it while price rose to 151.80. Every short taken on 'overbought' lost; the reading described strength, not exhaustion.

Limitations

  • Bounded, so it cannot express how strong a trend is beyond its ceiling.
  • 70/30 are conventions and are routinely wrong in trends.
  • Divergence appears often and resolves without a reversal at least as often.

Works well alongside

  • · ADX / DMI
  • · Market structure
  • · ATR

Redundant with

  • · Stochastic
  • · CCI
  • · Williams %R
  • · StochRSI

Stacking these produces agreement by construction, which is not confirmation.

Practice exercise

Collect 20 RSI(14) readings above 70 on 4h EUR/USD. Split by ADX above or below 20 and record the next 20-candle move in ATR units for each group.

Check your understanding

1. RSI above 70 in a strong uptrend most reliably indicates:
  • · An imminent reversal
  • ✓ Sustained upward momentum
  • · Low volatility
  • · A range

RSI can remain above 70 for extended periods in a trend. It measures momentum strength, not exhaustion.

2. If average gain equals average loss, RSI is:
  • · 0
  • ✓ 50
  • · 70
  • · 100

RS = 1, so RSI = 100 − 100/2 = 50, the neutral midpoint.