What is the Relative Strength Index (RSI)?
The Relative Strength Index (RSI) is a momentum oscillator developed by J. Welles Wilder Jr. that measures the speed and change of price movements. RSI oscillates between zero and 100 and is traditionally used to identify overbought or oversold conditions in a market.
How to Use the RSI Calculator
- Enter Price Data: Paste a list of closing prices into the "Price Data" field. You can separate them by commas, spaces, or newlines.
- Set Lookback Period: The default is 14 periods, which is the industry standard. You can adjust this to suit your trading strategy (e.g., 9 for faster signals, 25 for smoother signals).
- Interpret Results: The calculator will instantly output the current RSI value and a historical table of calculations.
How to Interpret RSI Values
- Overbought (> 70): When the RSI rises above 70, the asset may be considered overbought, suggesting it could be due for a correction or pullback.
- Oversold (< 30): When the RSI falls below 30, the asset may be considered oversold, suggesting it could be undervalued and due for a bounce.
- Neutral (30 - 70): The asset is trading within a normal range.
- Divergence: A powerful signal occurs when the price makes a new high/low but the RSI does not confirm it (divergence), potentially signaling a reversal.
Frequently Asked Questions
What is the formula for RSI?
RSI is calculated using a two-step process starting with the following formula:RSI = 100 - [100 / (1 + Average Gain / Average Loss)]
Why uses Wilder's Smoothing?
Standard RSI calculations use Wilder's Smoothing method rather than a simple moving average. This places more weight on recent data and creates a more stable indicator line that doesn't change drastically when old data drops off.