Momentum · Oscillator · 1978 · Any timeframe
The Relative Strength Index measures how strong recent gains have been compared with recent losses, on a scale of 0 to 100. J. Welles Wilder introduced it in 1978 in New Concepts in Technical Trading Systems. It's now one of the most widely used indicators in retail trading, and one of the most widely misused.
RSI compares the average gain with the average loss over a lookback period, usually 14. Above 70 is traditionally called overbought, and below 30 oversold. The common mistake is treating those readings as automatic reversal signals. In a strong trend RSI can sit in either zone for a long time. Most experienced traders look for the reading to leave the zone, such as RSI climbing back above 30. They also watch which half of the range RSI holds on pullbacks: above 50 in a healthy uptrend, below 50 in a downtrend.
A sharp sell-off drags RSI below 30 — 'oversold'. On its own that isn't a buy signal: in a strong downtrend RSI can stay oversold for a long time.
RSI climbs back above 30. Selling pressure has faded enough for momentum to turn — this recovery, rather than the oversold reading itself, is the classic signal.
As the new trend builds, RSI stays mostly above 50 on the pullbacks. That's the 'momentum' reading: buyers remain in control even when price dips.
RSI pushes above 70. Traders often tighten stops or take partial profits here, but in a strong trend 'overbought' can persist just as long as oversold did.
Illustrative example only — not real market data.
The chart above shows RSI used as a momentum gauge rather than a reversal trigger. It washes out below 30, recovers, holds above 50 as the new trend builds, and finally reaches overbought. The overbought reading on its own says nothing about where the trend ends.