RSI measures how fast a stock is rising or falling on a 0-100 scale. It tells you whether the stock is overbought (likely to pull back) or oversold (likely to bounce). Developed by J. Welles Wilder in 1978.
RSI compares average gains to average losses over 14 trading days.
RSI = 100 - (100 / (1 + RS)) where RS = avg gain / avg loss.
A stock that gains every single day would have RSI near 100; one that loses every day would have RSI near 0.
> 70 -- Overbought: buyers may be exhausted; pullback is possible.
< 30 -- Oversold: sellers may be exhausted; bounce is possible.
50 -- Midline: crossing above is bullish, crossing below is bearish.
Note: a stock can stay overbought for weeks in a strong uptrend -- RSI alone is not a sell signal.
Divergence is one of RSI's most powerful signals:
Bearish divergence: price makes a new high but RSI makes a lower high.
-> momentum is weakening even though price looks strong.
Bullish divergence: price makes a new low but RSI makes a higher low.
-> selling pressure is easing; reversal may be near.
The dashboard colors RSI red when > 70 (overbought), green when < 30 (oversold). Alerts fire when RSI crosses these thresholds. RSI is also a feature in the ML prediction model.
Related: MACD -- Moving Average Convergence Divergence • Bollinger Bands • Moving Averages (MA20, MA50, MA200) • patterns_divergence