The RSI (Relative Strength Index) is a technical oscillator invented by J. Welles Wilder in 1978. It ranges 0-100 and measures how fast prices rise or fall over a given period (typically 14 candles).
Standard reading:
- RSI > 70: overbought zone — asset may have risen too fast, potential bearish reversal signal
- RSI < 30: oversold zone — asset may have dropped too fast, potential bullish reversal signal
- RSI = 50: equilibrium, no strong info
Important limitations: RSI > 70 doesn't mean "sell now" — in a strong uptrend, RSI can stay > 70 for weeks (see Bitcoin in 2017, 2021, 2024). The "overbought" signal in a strong trend is counter-productive.
Advanced signals:
- Bullish divergence: price makes a new low, RSI makes a higher low → downtrend losing steam, possible reversal
- Bearish divergence: price makes a new high, RSI makes a lower high → uptrend losing steam
- 50-line break: crossing 50 upward often used as long entry, downward as short entry
RSI is rarely used alone. Combined with support/resistance, moving averages, or volume, it becomes a great timing filter.