Relative Strength Index

Key points

• The RSI is a technical indicator that measures the strength and speed of an asset's price movements.
• It is expressed on a scale from zero to one hundred, used to signal conditions in which the price may be overextended.
• It is a supporting tool, not an infallible signal: extreme readings can persist for a long time.

What is the RSI?

RSI stands for relative strength index. It is an indicator used in technical analysis that summarizes, in a single number between zero and one hundred, the intensity of an asset's recent price movements. The idea is to measure momentum, that is, how strongly and quickly the price has been rising or falling, to help identify situations in which the movement may be overdone.

How it works

The RSI compares the magnitude of recent gains with that of recent losses over a defined period, condensing this relationship into a value on the zero-to-one-hundred scale. When gains predominate strongly, the index rises; when losses predominate, it falls. Reference ranges have become conventional: very high readings tend to be read as an overbought condition, and very low readings as oversold.

These ranges are interpreted as possible signals of overextension. A very high RSI suggests the price has risen intensely and may be stretched, while a very low RSI suggests the opposite. Many participants use these readings as a warning that a movement may lose strength or reverse, combining the RSI with other tools to add more context to the analysis, rather than acting on it alone.

It is essential to understand that the RSI does not predict the future. An overbought or oversold condition does not guarantee a reversal; in strong trends, the index can remain at extreme levels for a long time while the price continues in the same direction. Treating it as an automatic decision trigger is risky. Like any technical indicator, the RSI describes past price behavior and offers clues, not certainties, about what may happen.

Understanding these limits avoids attributing to the RSI a predictive power it does not have.

Why it matters

Understanding the RSI helps in interpreting one of the most cited technical indicators and in recognizing its limits as a supporting tool. Knowing that extreme readings do not guarantee a reversal helps in using it with caution. This is an analytical concept, and none of it represents a trading recommendation.

Risks and limitations

The RSI does not predict the future: in strong trends, it can remain at extreme levels for long periods without a reversal occurring. Overbought or oversold readings are clues, not reliable triggers, and different settings produce different results. For this reason, it works best combined with other tools rather than in isolation. Nothing here represents a trading recommendation.