RSI Calculator
Compute the Relative Strength Index (RSI) from average gains and losses over a chosen period. Traders use RSI to spot overbought or oversold conditions before entering or exiting a position.
About this calculator
The Relative Strength Index (RSI) is a momentum oscillator developed by J. Welles Wilder that measures the speed and magnitude of recent price changes. It is calculated as: RSI = 100 − (100 / (1 + (averageGain / averageLoss))). The averageGain and averageLoss are typically smoothed averages over a chosen period — most commonly 14 periods. RSI values range from 0 to 100. A reading above the overbought threshold (commonly 70) suggests the asset may be overextended to the upside, while a reading below the oversold threshold (commonly 30) suggests potential undervaluation. Traders use these signals to time entries, exits, or to confirm trend strength alongside other indicators.
How to use
Suppose you set a 14-period RSI with an average gain of $0.80 and an average loss of $0.40. First, compute the Relative Strength (RS): RS = 0.80 / 0.40 = 2.0. Then apply the RSI formula: RSI = 100 − (100 / (1 + 2.0)) = 100 − (100 / 3) = 100 − 33.33 = 66.67. With overbought set at 70 and oversold at 30, an RSI of 66.67 is approaching but has not yet crossed the overbought threshold, suggesting bullish momentum without a confirmed overbought signal.
Frequently asked questions
What does an RSI value above 70 mean for a stock?
An RSI above 70 indicates that the asset is in overbought territory, meaning prices have risen sharply relative to recent losses. This does not guarantee an immediate reversal, but it signals that the asset may be overextended. Traders often watch for RSI to turn back below 70 as a sell or short signal. In strong uptrends, RSI can remain overbought for extended periods, so it is best used alongside price action or other indicators.
How is the RSI period length chosen and how does it affect the signal?
The default RSI period is 14, as recommended by Wilder, and it balances sensitivity with reliability. Shorter periods (e.g., 7) make RSI more reactive, producing more frequent signals but also more false positives. Longer periods (e.g., 21 or 28) smooth the indicator, generating fewer but potentially more reliable signals. Day traders often use shorter periods, while swing and position traders prefer the standard 14 or longer settings.
Why do average gain and average loss use smoothed averages in RSI calculations?
Wilder used a smoothed moving average (also called the Wilder Moving Average) rather than a simple average to reduce choppiness and give more weight to recent data. The smoothing formula carries forward a portion of the previous average and adds the current period's value, creating a continuous, exponentially weighted series. This approach makes the RSI less prone to single-period spikes distorting the reading. For the very first calculation over the initial period, a simple arithmetic average is used to seed the smoothing process.