RSI, the relative strength index, is a momentum indicator that measures the speed and size of recent price changes on a scale from 0 to 100. Above 70, readings are conventionally called overbought; below 30, oversold. In his 1978 book New Concepts in Technical Trading Systems, J. Welles Wilder introduced it, and nearly fifty years later it remains one of the most widely displayed indicators on crypto charts.
What RSI measures
How fast price has been moving up relative to how fast it has been moving down, over a set window.
By default, the window is 14 periods. On a daily chart that means 14 days. On an hourly chart, 14 hours. The indicator compares the average size of up-moves to the average size of down-moves across that window, then compresses the result into a 0 to 100 scale.
Near 100, almost every recent period closed higher. Near 0, almost every period closed lower. Near 50, the two have been roughly balanced.
How it is calculated
In plain words, then the formula.
Take the average gain over the last 14 periods and the average loss over the same 14. Divide the average gain by the average loss to get relative strength, RS. Then apply: RSI = 100 minus 100 divided by (1 plus RS).
Two consequences follow. Bounded, the indicator cannot run away like a moving average can. As a ratio of averages, it smooths one enormous move against thirteen ordinary ones.
How to read it
| Reading | Conventional label | What it actually describes |
|---|---|---|
| Above 70 | Overbought | Recent gains have outpaced recent losses by a wide margin |
| 50 to 70 | Bullish momentum | Gains modestly exceed losses |
| 30 to 50 | Bearish momentum | Losses modestly exceed gains |
| Below 30 | Oversold | Recent losses have outpaced recent gains by a wide margin |
Note the third column. "Overbought" describes what the price has done. It does not say the price will reverse, and the most expensive misreading of RSI is treating a label as a forecast.
Where the labels mislead
Here is the caveat most indicator guides omit.
In a strong trend, RSI stays "overbought" for weeks. During the 2020 to 2021 advance, Bitcoin's daily RSI sat above 70 for extended stretches while price kept rising. Selling at the first reading above 70 meant exiting early, repeatedly.
In reverse, the same holds. During the 2022 decline, RSI printed "oversold" many times on the way down, and each reading looked like a bottom that was not one.
The indicator tells you momentum is stretched. It cannot tell you whether stretched momentum continues or reverses, and in trending markets it frequently continues.
Divergence, which is the more useful signal
Traders watch for the indicator disagreeing with price.
Bearish divergence. Price makes a higher high while RSI makes a lower high. The move is continuing on weaker momentum.
Bullish divergence. Price makes a lower low while RSI makes a higher low. Selling pressure is easing even as price falls.
Divergence describes a change in the character of a move rather than just its extent, which is why it is treated as a stronger signal than the raw level. Regularly, it still fails. For long stretches before anything happens, divergences can persist, and many resolve in the direction of the original trend.
Adjusting the settings
The 14-period default is Wilder's, and it is a convention rather than a law.
Shorter windows, like 7 or 9, make the indicator more responsive and noisier. Longer windows, like 21 or 25, smooth it and slow it. Some traders shift the thresholds to 80 and 20 in strongly trending markets to reduce false signals.
Every adjustment trades responsiveness against reliability. There is no setting that predicts better. There are only settings that describe recent movement differently.
What RSI does not tell you
- Nothing about direction ahead. It measures what happened over the lookback window.
- Nothing about magnitude. A reversal from 75 can be a 2% pullback or a 40% decline.
- Nothing about volume. The indicator is price-only, which is why traders pair it with volume.
- Nothing that survives thin markets. On a small-cap token with a few trades a day, RSI reflects noise.
- Nothing on its own. Every study of RSI as a standalone system across liquid markets finds weak or negative results after costs.
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Frequently asked questions
What does RSI stand for?
Relative strength index, a momentum indicator introduced by J. Welles Wilder in 1978. On a 0 to 100 scale, it measures the speed and size of recent price changes.
What is a good RSI to buy?
There is no reliable answer. Readings below 30 are labelled oversold, and in a downtrend the indicator prints oversold repeatedly on the way to lower prices. The label describes recent movement, not what comes next.
What does overbought mean?
Recent gains have outpaced recent losses by a wide margin, producing an RSI above 70. In a strong uptrend, price can stay overbought for weeks while continuing to rise.
What is RSI divergence?
The indicator moving in the opposite direction to price: a higher price high with a lower RSI high, or a lower price low with a higher RSI low. Signalling a change in momentum's character, it is treated as stronger than the raw level.
What RSI period is best?
Fourteen is the default from Wilder's original work. Shorter windows respond faster and produce more noise. Longer windows smooth and lag. No setting predicts better than another.
Does RSI work in crypto?
In any liquid market, it describes momentum. Everywhere, its predictive record as a standalone signal is weak, and on thin markets where a handful of trades move the calculation, it is worse.
What is the difference between RSI and MACD?
RSI measures the speed of price change on a bounded scale. MACD measures the relationship between two moving averages and is unbounded. Both are momentum indicators built from price alone.
Can RSI predict a reversal?
No. It shows only that momentum is stretched. What the indicator cannot say is whether stretched momentum reverses or continues, and in trending markets it frequently continues.
