What is RSI? This is how the Relative Strength Index is read

RSI (Relative Strength Index) is a momentum indicator that measures how strong gains have been compared to losses over the last 14 periods, on a scale of 0 to 100. Above 70 it's customary to say the asset is "overbought"; below 30 — "oversold".

It was developed by J. Welles Wilder in 1978, and became the most widely quoted indicator in the world — and also one of the easiest to use incorrectly.

What the number actually says

A high RSI says one thing only: The recent gains were strong and fast relative to the losses. It doesn't say "too expensive" and it doesn't say "must fall". Likewise, a low RSI says the declines were sharp — not that the asset is "cheap".

So the correct reading is one of momentum, not value: RSI moving between 40 and 80 is typical of a healthy uptrend; RSI stuck between 20 and 60 is typical of a downtrend. The position of the range itself tells us what environment we're in.

The classic mistake: selling just because it's "overbought"

The most common mistake with RSI is automatically selling at 70 and buying at 30. In a strong uptrend, RSI can sit above 70 for long weeks while the price keeps climbing — anyone who sold "because RSI was high" got out at the start of the move. And in a downtrend, "oversold" can remain oversold through much more decline.

The useful approach is the opposite: at the extremes, don't open a position against the trend just because of the number — but do be wary of chasing a new entry when the momentum gauge is stretched to the edge. Entering at an extreme RSI is entering in the middle of a sprint.

Divergence: when price and RSI tell different stories

Negative divergence: Price makes a new high, but RSI makes a lower high than before — the rise continues but the momentum behind it is weakening. This is a warning sign, not a sell order.

Positive divergence: Price is at a new low and RSI is at a higher low — the decline is slowing internally. Combined with a support level and a reversal candle, this is one of the most respected signals in technical analysis.

As always: divergence is context, not a trigger. It says "pay attention", and the entry itself waits for confirmation from the price.