Relative Strength Index

The Relative Strength Index, developed by J. Welles Wilder Jr. in 1978, is a momentum oscillator that ranges from 0 to 100. It quantifies how strongly a market has been moving up versus down over a recent window of bars.

Because RSI is bounded, it offers a consistent way to compare momentum across different assets and timeframes. A reading of 30 means the same thing — relatively weak recent momentum — whether you are looking at BTC, gold, or an index. This consistency is what makes RSI one of the most widely studied oscillators in technical analysis.

RSI is computed in three steps over a lookback window of N bars (default 14):

1. Separate each bar's price change into a positive (gain) or negative (loss) component. 2. Compute the average gain and average loss over the window using a smoothed moving average. 3. Apply the formula: RSI = 100 − 100 / (1 + RS), where RS = average gain ÷ average loss.

When recent gains dominate, RS grows large and RSI approaches 100. When losses dominate, RS approaches zero and RSI approaches 0. Equal gains and losses produce RSI = 50.

Three classic interpretations:

Overbought / oversold thresholds. RSI above 70 is conventionally called "overbought" — a sign that recent gains have been extreme and a pause or pullback is statistically more likely. RSI below 30 is "oversold" with the symmetric interpretation. These thresholds are conventions, not laws.

Centerline crossover. RSI rising through 50 hints at strengthening upside momentum; falling through 50 hints at weakening. This is gentler than 70/30 and useful as a trend filter.

Divergence. When price makes a higher high but RSI makes a lower high, momentum is fading even as price advances. This bearish divergence is one of the more reliable RSI signals. Bullish divergence (lower price low, higher RSI low) is the symmetric setup.