RSI (Relative Strength Index)
Category
Klassische Technische Analyse
Sub-category
Trend-Indikatoren
Curated by
Last reviewed
The RSI (Relative Strength Index) is a momentum oscillator measuring the strength of up moves against down moves over the last n periods (standard: 14) on a scale from 0 to 100. Values above 70 count as overbought, below 30 as oversold – but in strong trends the RSI can stay extreme for a long time. It works most reliably as a timing tool in the context of the higher-level regime, not as a standalone reversal signal.
Context & Mechanics
Construction
The RSI (J. Welles Wilder, 1978) calculates the ratio of average price gains to average price losses over the last n periods – standard is 14 – and normalises it to a scale from 0 to 100: RSI = 100 − 100 ÷ (1 + RS), where RS = average gain ÷ average loss. If all candles rise, the RSI approaches 100; if all fall, 0. The normalisation makes the RSI – unlike the MACD – comparable across instruments.
The classic readings
Overbought/oversold: above 70 the market counts as overbought, below 30 as oversold. This works as a mean-reversion signal in sideways markets – in trends, however, “overbought” is often simply an expression of strength: the RSI can trade above 70 for weeks in uptrends. Divergences: a new price high without a new RSI high (bearish) or a new price low without a new RSI low (bullish) shows fading momentum – a warning requiring confirmation, not a trigger. Regime shift: in bull markets the RSI often oscillates between 40 and 90, in bear markets between 10 and 60 – the extreme zones shift with the trend.
Limits
The RSI is a calculation over past candles, not a forecast: in strong trends the overbought reading delivers serial false signals against the trend – the most expensive RSI mistake is shorting an uptrend “because the RSI is above 70”. More robust is the combination with a trend filter (e.g. position relative to the EMA 200): mean-reversion signals only in ranges, pullback signals (RSI retracements towards 40–50 in an uptrend) only in trend direction. Parameters and thresholds should be backtested for market and timeframe.
Why it matters for traders
The RSI answers the question “how stretched is the current move?” – as a timing building block in regime context, not a standalone system. In the GlanWick chart the RSI can be laid over historical data with adjustable periods and thresholds and evaluated by way of example – GlanWick is a training and simulation tool and not a prop firm itself.
Execution Example
A stock trades above the rising EMA 200 in an uptrend. After a rally from $48 to $53 the price pulls back to $51; the RSI(14) falls from 78 to 44 in the process. A trader checks a pullback setup.
- Regime check: price above the rising EMA 200 → upward regime. Overbought signals against the trend are ignored, pullback signals in trend direction are allowed.
- RSI reading: the retracement from 78 to 44 shows released momentum without a trend break – in a bull regime the RSI typically oscillates between 40 and 90; the 40–50 zone is the classic pullback zone.
- Entry logic: long entry at $51.20 once a bullish confirmation candle signals the end of the pullback; stop below the pullback low at $50.60 ($0.60 risk per share).
- Negative example: had the trader blindly shorted at RSI 78, they would have been positioned against the regime – in strong trends the RSI often stays overbought for a long time while price keeps rising.
Execution Risk & Errors
Trading against overbought/oversold RSI values in strong trends instead of respecting the regime
Reading divergences as immediate reversal signals instead of warnings requiring confirmation
Transferring the standard 70/30 thresholds to every market and timeframe without testing
Using the RSI in isolation as a complete trading system instead of a timing building block
Overlooking that RSI ranges shift systematically in bull and bear markets
Frequently Asked
What does an RSI above 70 mean?
Formally overbought: the up moves of the last 14 periods dominate strongly. In ranges that is a mean-reversion hint – in uptrends, however, often simply trend strength that can persist for weeks. Context decides.
Which RSI period is common?
Standard is 14 (after Wilder). Shorter periods (e.g. 7) react faster and deliver more signals along with more noise, longer ones (e.g. 21) smooth more. The choice should be backtested for market and holding time.
What is an RSI divergence?
Price and RSI diverge: a new price high without a new RSI high (bearish) or a new price low without a new RSI low (bullish). It shows fading momentum – useful as a warning, error-prone as a standalone trade trigger.
How do RSI and MACD differ?
The RSI is normalised (0–100) and measures the stretch of the recent move – good for timing. The MACD measures absolute trend momentum from the distance of two EMAs – good for direction. Many traders combine both.