RSI explained: Relative Strength Index for traders
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By Ken Chigbo, Founder, KenMacro. Published 2026-05-12.
Quick answer
RSI (Relative Strength Index) is a momentum oscillator developed by J. Welles Wilder in 1978. RSI ranges from 0 to 100, calculated from the ratio of average gains to average losses over a lookback period (typically 14 bars). Standard interpretation flags readings above 70 as overbought and below 30 as oversold, but those thresholds rarely work as standalone signals in trending markets.
Quick answer
RSI (Relative Strength Index) is a momentum oscillator developed by J. Welles Wilder in 1978. RSI ranges from 0 to 100, calculated from the ratio of average gains to average losses over a lookback period (typically 14 bars). Standard interpretation flags readings above 70 as overbought and below 30 as oversold, but those thresholds rarely work as standalone signals in trending markets.
What is RSI?
RSI is a momentum oscillator that measures the magnitude of recent price changes to identify overbought or oversold conditions. The calculation, developed by J. Welles Wilder in 1978, divides average gains by average losses over a 14-bar window and normalises the result to a 0-100 scale. RSI above 70 is conventionally called overbought; below 30 is oversold. The indicator is computed on closing prices and updates with every new bar. RSI is the most widely used momentum indicator in retail trading and is built into every major charting platform (TradingView, MetaTrader, NinjaTrader, ThinkOrSwim).
How traders use RSI
Traders who use RSI well treat it as a context indicator rather than a standalone signal generator. In ranging markets, RSI overbought and oversold readings have some predictive value at structural levels; in trending markets, RSI can read overbought for weeks while price continues higher (a phenomenon Wilder explicitly warned about). The more reliable RSI signals are divergence (price making a new high while RSI does not) and structural confluence (RSI overbought coinciding with a tested resistance level rather than RSI alone). Connors RSI(2), a 2-period variant, is the basis for the desk's deployed mean-reversion framework on indices, with documented results separate from the standard 14-period RSI. The desk treats raw RSI 70 or 30 readings as context, not signals.
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Common misconceptions about RSI
The first misconception is that RSI 70 means sell and RSI 30 means buy. Wilder himself warned that in strong trends RSI can stay overbought or oversold for extended periods; the simple threshold cross is one of the worst-performing standalone signals in technical analysis. The second is that RSI works the same on all timeframes. RSI on a 1-minute chart is noise; on the daily and weekly chart it carries more signal. The third is that the 14-period setting is optimal. The Connors RSI(2) framework, used by the desk on indices for mean reversion, performs differently and uses 2-period RSI in a specific oversold-bounce structure.
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Frequently asked
What does RSI above 70 mean?
RSI above 70 is conventionally called overbought, indicating recent gains have outpaced recent losses by a large margin over the lookback window. In ranging markets, RSI overbought has some predictive value for short-term reversal at structural levels. In trending markets, RSI can read above 70 for weeks while price continues higher. RSI 70 alone is rarely a reliable sell signal.
What is the best RSI setting?
The standard RSI setting is 14 periods, as originally specified by J. Welles Wilder in 1978. Variations include the 2-period Connors RSI (used in mean-reversion strategies) and longer settings (21 or 28 periods) for swing trading. The desk uses the 2-period Connors RSI in its deployed mean-reversion framework on indices and treats the standard 14-period RSI as context, not signal.
Does RSI work on every market?
RSI is calculable on any market with continuous price data: forex, equities, indices, commodities, crypto. The indicator's predictive value varies by market regime (better in ranging markets, worse in trending markets) and by timeframe (more signal on daily and weekly, less on 1-minute). RSI works best as context within a structural framework, not as a standalone signal generator.
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