RSI Explained: How to Read the Relative Strength Index

How RSI is calculated

RSI compares the average size of recent up-moves to the average size of recent down-moves over a lookback window — most commonly 14 trading days. The formula is RSI = 100 − 100 / (1 + RS), where RS is the average gain divided by the average loss over the window. The result is bounded between 0 and 100.

Because it's an average of recent moves, RSI rises when buying pressure dominates and falls when selling pressure dominates. A reading of 50 means up- and down-moves have been roughly balanced.

Overbought and oversold

• RSI above 70 is conventionally 'overbought' — the recent rally has been strong and may be due for a pause or pullback.
• RSI below 30 is 'oversold' — the recent decline has been sharp and a bounce becomes more likely.
• The 40–60 band is neutral. Most of the time a stock sits here, and RSI alone tells you little.

The classic mistake is treating overbought as 'sell' and oversold as 'buy' mechanically. In a strong uptrend, RSI can stay above 70 for weeks while the stock keeps climbing; in a downtrend it can sit below 30 the whole way down. Overbought is not a top, and oversold is not a bottom — they're context, not commands.

Reading RSI in context

RSI is far more useful alongside trend. In an uptrend, an oversold RSI can mark a buyable dip; in a downtrend, an overbought RSI can mark a place where a bounce fades. Divergence — price making a new high while RSI makes a lower high — can hint that momentum is weakening, though it's a soft signal, not a guarantee.

StockTracker AI computes a 14-day RSI on every stock it scans and feeds it into a composite score alongside MACD, moving averages, the Sharpe ratio, and momentum — so a single overbought reading never drives a verdict on its own. You can see the current RSI on any stock's page.