What is RSI (Relative Strength Index)?
Almost every chart platform puts RSI one click away, and almost every beginner learns the same two numbers — 70 and 30 — without ever seeing where the reading comes from. Below is the arithmetic on a full 14-bar window, so the number stops being a mood and becomes a measurement you can check.
What does RSI actually measure?
A fraction. Over the last 14 closes, RSI adds up how far price moved on the bars that went up, adds up how far it moved on the bars that went down, and divides one total by the other. That quotient is called RS, the relative strength. The 0–100 scale is just a way of squashing a ratio that could run from zero to infinity into a number that fits on a chart pane.
This matters more than it sounds, because a fraction can move for two different reasons. RSI rises when buying gets stronger — and it also rises when selling simply stops. Those are not the same market, and the reading alone cannot tell you which one you are in.
How is RSI calculated, step by step?
Here is a 15-close series built for this page — not a real market, but internally consistent, so every number below can be reproduced. Fifteen closes give fourteen changes, which is exactly one full window.
| Bar | Close | Change | Up move | Down move |
|---|---|---|---|---|
| 1 | 42,350 | +350 | 350 | — |
| 2 | 42,180 | −170 | — | 170 |
| 3 | 42,600 | +420 | 420 | — |
| 4 | 42,950 | +350 | 350 | — |
| 5 | 42,760 | −190 | — | 190 |
| 6 | 43,300 | +540 | 540 | — |
| 7 | 43,150 | −150 | — | 150 |
| 8 | 43,620 | +470 | 470 | — |
| 9 | 43,400 | −220 | — | 220 |
| 10 | 43,880 | +480 | 480 | — |
| 11 | 44,250 | +370 | 370 | — |
| 12 | 44,050 | −200 | — | 200 |
| 13 | 44,700 | +650 | 650 | — |
| 14 | 45,100 | +400 | 400 | — |
| Totals (starting close 42,000) | 4,030 | 930 | ||
Divide each total by 14 and you get the average up move, 287.86, and the average down move, 66.43. Then:
RS = 287.86 ÷ 66.43 = 4.33
RSI = 100 − 100 ÷ (1 + 4.33) = 81.25
Charting software does one extra thing: after the first window it smooths each average forward rather than recomputing it from scratch, so today's reading carries thirteen parts of yesterday. That is why a single bar nudges RSI instead of jolting it. Lesson 19 walks through the smoothing and what each reading converts to in pressure terms.
Does RSI 81 mean 81% of bars went up?
No, and this is the most useful thing on this page. In the series above, 9 of the 14 bars closed up and 5 closed down. That is 64.3% up bars — yet RSI reads 81.25.
The gap is the point. Here is the identity behind it: if every bar in the window moved the same distance, RSI would land exactly on the share of up bars. Nine up bars and five down bars of equal size give RS = 9 ÷ 5 = 1.8 and RSI = 64.29 — the same 64.3%. So any distance between RSI and the up-bar percentage is a statement about size, not about count. Our reading sits 17 points higher because the up bars averaged 448 points while the down bars averaged 186.
What RSI is not: it is not a headcount of buyers against sellers — every trade has one of each, so the market is always 50/50 by that measure. It is not a forecast; it reads bars that have already closed. And it is not a comparison between two assets, despite the name. That is a different tool, confusingly also called relative strength.
What do the numbers on the 0–100 scale mean?
Every reading converts back to a plain ratio, because RS = RSI ÷ (100 − RSI). Read the table as sentences about size, not as instructions.
| Reading | What the arithmetic says | Usual label |
|---|---|---|
| Below 30 | Down moves at least 2.3× the size of up moves | "oversold" |
| 40–60 | Up and down moves roughly the same size | neutral |
| Above 60 | Up moves at least 1.5× the size of down moves | — |
| Above 70 | Up moves at least 2.3× the size of down moves | "overbought" |
Ratios come from RS = RSI ÷ (100 − RSI): at 30, RS = 0.43, so the down side is 1 ÷ 0.43 = 2.3 times larger.
One school of chart reading watches 40 and 60 rather than 30 and 70, on the argument that a rise which stalls under 60 shows selling fading rather than buying arriving. It is a reading, not a law — and it fails in the same conditions everything else does, which is the next section.
When is the 70/30 rule wrong?
In a trend, which is exactly when people reach for it. Our own series is the illustration: it closes at 81.25 while making higher highs the whole way. Nothing in the arithmetic says a reading above 70 must come back down — a market can print bigger up bars than down bars for months, and the reading will sit above 70 for months. Selling because the number is high means selling strength.
The reading is also close to meaningless in a quiet range. When bars are tiny and alternate direction, both averages shrink together and RSI drifts around 50, telling you only that nothing is happening. And on a very short timeframe, "14 bars" may be fourteen minutes — a window too small to describe anything but noise. RSI is a description of the last fourteen closes, no more; see timeframe for why the same setting means different things on different charts.
FAQ
What does RSI stand for? Relative Strength Index. The "relative strength" is the ratio of the average up move to the average down move over the look-back period — it has nothing to do with comparing one asset against another.
Why is the RSI setting 14? Because J. Welles Wilder used 14 bars when he published the indicator in 1978, and charting software copied the default. There is nothing special about 14. A shorter setting reacts faster and gives more signals; it does not give better ones.
Does RSI above 70 mean I should sell? No. It says recent up moves have been more than twice the size of recent down moves, which is what a strong uptrend looks like. In a trending market the reading can stay above 70 for weeks.
Can RSI reach 0 or 100? Only when every bar in the window moved one way, so one of the two averages is zero. Readings above 95 or below 5 mark a one-sided run, not a turning point.
See what every reading is worth
The lesson converts each RSI level into an exact pressure ratio and measures how many red bars it takes to unwind an "overbought" reading.
Every key term, one roadmap
The whole slide course — ten free PDF parts, 351 pages.
RSI answers one narrow question — how big have the up moves been next to the down moves — and answers it exactly. If you want to use it rather than just read it, Lesson 19 is the next step, and the agreement rule covers what happens when you stack it with a moving average.