RSI: The Relative Strength Index
A bounded oscillator comparing the size of recent gains to recent losses. It measures stretch, and the conventional thresholds are conventions rather than rules.
MadStockAlerts Research · Updated August 28, 2026
What to take away
- The Relative Strength Index runs from 0 to 100 and compares average gains to average losses.
- Above 70 and below 30 are conventional thresholds, not laws.
- In a strong trend RSI can remain at an extreme for weeks without a reversal.
- It describes momentum; it does not predict a turn.
- It is unrelated to relative strength against a benchmark despite the shared word.
- The usable range of RSI shifts with the regime, and the shift itself is more informative than any single reading.
MAD Academy Training Video · 0:45
Why 70 Is Not a Sell Signal
RSI measures the balance of recent gains against recent losses — which is why it can sit above 70 through an entire advance.
This lesson is part of a Stock Alerts + Tools plan.
The calculation
RSI = 100 - 100 / (1 + RS), where RS = average gain / average loss
- averages are taken over the lookback, conventionally 14 periods
- gains and losses are measured close to close, and both are used as positive numbers
If every period in the window closed higher, average loss is zero, RS is undefined at the limit and RSI reads 100. If every period closed lower it reads 0. Everything in between is a ratio of how one-sided the recent record has been.
The bounded range is the useful property. Unlike MACD, whose value scales with the price of the instrument, RSI at 68 means the same kind of thing on a $4 stock and a $400 one, which is what makes it screenable across a whole market.
What the thresholds actually mean
RSI above 70 says gains have substantially outweighed losses over the lookback. It does not say the price is too high, and it certainly does not say it will fall. The word overbought is doing enormous unearned work: nothing in the calculation knows what the security is worth.
The most common error in the field
Selling because RSI crossed 70 is a bet against a trend at the moment the trend is strongest. In a powerful advance RSI can sit above 70 for weeks and reach the high 80s repeatedly, and each of those readings is the indicator working correctly.
Scroll the chart sideways to see all of it.
- SMA 20
Some practitioners invert the reading for exactly this reason and treat a sustained high RSI as evidence of strength rather than exhaustion. Both readings are defensible; what is not defensible is treating the threshold as a rule that has been broken.
Divergence
Divergence occurs when price makes a higher high while RSI makes a lower one, indicating the second advance had less momentum behind it than the first. It describes a loss of intensity, which is a real and legible observation.
It is also unreliable as a timing device. Divergence can persist across many bars while price continues in the same direction, and the phrase used to describe that in practice is that divergence is not a reversal until the price confirms it.
The failure mode is specific: a strong trend produces divergence almost continuously, because the first leg of any powerful move is the most violent and every subsequent leg has less momentum by comparison. Divergence in that context is a description of a maturing trend rather than a warning about one.
Period choice
| Lookback | Behaviour |
|---|---|
| 7 | Very responsive; reaches extremes frequently, many false readings |
| 14 | The default; the balance most reference material assumes |
| 21 or more | Smoother; reaches extremes rarely, and late when it does |
Because 14 is the default in nearly every platform, it is also the setting most participants are looking at, which gives it the same partly self-reinforcing quality as the 200-day average. A reading that everyone can see is a reading that more people act on.
The Chart Analyzer carries RSI(14) in its technicals card alongside the moving averages and the range meters.
RSI on a live chart — for membersWhy the levels behave differently in a trend
The conventional thresholds of 70 and 30 are frequently described as overbought and oversold, which implies a security is due to reverse. That interpretation fails in exactly the conditions where it is most often applied.
In a strong uptrend, RSI spends extended periods above 70 and rarely falls below 40. The reading is not a warning; it is a description of a security that keeps closing higher, which is what an uptrend is. Selling every reading above 70 in such a period is selling the trend repeatedly.
| Regime | Typical RSI range | How the levels are conventionally read |
|---|---|---|
| Strong uptrend | 40 to 90 | 40 acts as support, 70 carries no warning |
| Range | 30 to 70 | The textbook interpretation works best here |
| Strong downtrend | 10 to 60 | 60 acts as resistance, 30 carries no signal |
The shift in the usable range is itself information. A security whose RSI stops reaching 70 and starts finding resistance near 60 has changed regime, and that transition is more informative than any single reading.