RSI Calculator
Calculate the Relative Strength Index (RSI) using 14-day average gains and losses to identify overbought or oversold conditions. Essential for momentum traders and technical analysts.
About this calculator
The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and magnitude of recent price changes on a scale from 0 to 100. The formula is: RSI = 100 − (100 / (1 + (average_gain / average_loss))). The 'relative strength' (RS) is simply the ratio of average gains to average losses over a lookback period, typically 14 days. An RSI above 70 is conventionally interpreted as overbought — the asset may be due for a pullback. An RSI below 30 signals oversold conditions, suggesting a potential rebound. Values near 50 indicate neutral momentum. RSI was developed by J. Welles Wilder in 1978 and remains one of the most widely used indicators in technical analysis.
How to use
Suppose over the last 14 days a stock had an average daily gain of $0.80 and an average daily loss of $0.40. First compute RS = 0.80 / 0.40 = 2.0. Then apply the formula: RSI = 100 − (100 / (1 + 2.0)) = 100 − (100 / 3) = 100 − 33.33 = 66.67. An RSI of 66.67 is approaching overbought territory (above 70) but has not crossed the threshold yet, suggesting strong upward momentum without an immediate reversal signal.
Frequently asked questions
What RSI value indicates a stock is overbought or oversold?
Traditionally, an RSI above 70 signals that an asset is overbought and may be due for a price correction or consolidation. An RSI below 30 suggests the asset is oversold and could be positioned for a rebound. These thresholds are guidelines, not hard rules — in strong trending markets, RSI can remain above 70 or below 30 for extended periods. Some traders adjust thresholds to 80/20 for more extreme signals in volatile assets.
Why is 14 days the standard lookback period for RSI calculation?
J. Welles Wilder originally recommended 14 periods in his 1978 book 'New Concepts in Technical Trading Systems,' as it roughly covers two weeks of trading and balances sensitivity with reliability. Shorter periods (e.g., 9 days) make RSI more reactive and generate more signals, including false ones. Longer periods (e.g., 21 days) smooth the indicator but can lag price moves significantly. The 14-period setting remains the default in virtually all charting platforms.
How is RSI used alongside other indicators in a trading strategy?
RSI is most powerful when combined with trend-following indicators like moving averages or MACD to confirm signals. For example, a trader might only act on an oversold RSI reading when the price is also above its 200-day moving average, filtering out counter-trend trades. RSI divergence — where price makes a new high but RSI does not — is also a popular signal for potential reversals. Using RSI in isolation can lead to premature entries, especially in strongly trending markets.