RSI

Rsi, short for Relative Strength Index, is a momentum oscillator used in technical analysis to assess the speed and change of price movements. It aims to identify overbought and oversold conditions in an asset by comparing the magnitude of recent gains to recent losses. The index oscillates between 0 and 100.

Calculating RSI typically uses a look-back period of 14 periods, though other periods are common. For each period, gains and losses are computed, and an average gain is divided by an average loss to form a relative strength (RS). RSI is then 100 minus 100 divided by (1 + RS). The average gains and losses are often smoothed with exponential moving averages.

Interpretation varies, but values above 70 are commonly viewed as overbought and values below 30 as oversold, suggesting potential reversals or pullbacks. Middle-range readings around 50 indicate weaker momentum. Traders often watch for divergences between price action and RSI, or when the RSI crosses above or below critical levels or the 50 line.

Introduced by J. Welles Wilder Jr. in 1978, RSI has become a standard tool in many trading systems. Variants include Stochastic RSI, which applies stochastic calculations to RSI values, and RSI with different look-back periods. Limitations include lag, false signals in strong trends, and context dependency, so RSI is typically used with trend analysis and price patterns.