Relative Strength Index (RSI)

RSI is a momentum oscillator that measures how fast and how far a stock’s price has moved recently. It outputs a number between 0 and 100 — higher means the stock has been going up more than down over the measured period, lower means the opposite. The standard setting is 14 periods, written as RSI(14).

Two levels matter: 70 and 30. Above 70, the stock has risen sharply in a short time and may be overbought — a pullback becomes more likely. Below 30, it has fallen sharply and may be oversold, meaning a bounce is possible. Between 30 and 70, there is no strong signal either way.

One thing worth knowing: a stock can stay above 70 or below 30 for a long time, especially in a strong trend. RSI measures intensity, not timing.

The most common approach is the oversold bounce. Screen for stocks where RSI has dropped below 30, then wait for signs of stabilization before buying. The assumption is that extreme selling pressure is temporary and prices will revert.

Screening for RSI above 70 is a different use case. It reads as momentum confirmation, not a sell signal. A high reading means buyers have been consistently active, not necessarily that a reversal is coming.

A more conservative entry is to wait for RSI to cross back above 30 from below, rather than buying the moment it dips under.