What it is — RSI
The Relative Strength Index compares the size of recent gains to recent losses into a 0–100 line (default: 14 periods). Above 70 is traditionally “overbought”; below 30 “oversold” — momentum stretched in one direction.
The classic beginner mistake is selling just because RSI crosses 70: in strong trends RSI can ride 70–85 for weeks while price keeps rising. Its professional uses are divergence (momentum fading at extremes), the 50-line as a trend gauge, and range trading (fading 30/80 in a clear range). This is also where RSI forex usage differs from stock charts: currency pairs trend in sessions, so the same 70–85 extremes mean different things on a 15-minute EURUSD chart than on a daily equity chart.
Why it matters — RSI
- Momentum made visible. One line tells you who is winning the push-pull right now.
- Range-tool of choice: fading 80/20 inside a real range is a complete, testable strategy.
- Divergence early-warning at exhausted extremes — see our live RSI examples in the guides.
RSI in one worked example
RSI(14) scores momentum from 0 to 100 using the ratio of recent up-closes to down-closes. EURUSD rallies eight sessions in a row and prints RSI 78. The textbook says “overbought, sell” — and traders who obey it donate their money, because in a genuine trend RSI routinely holds above 70 for days while price doubles the distance. The readable version: above 70 means strong, below 30 means weak, and the exit from those zones — RSI dropping back under 70 after a run, or recovering over 30 after a slide — carries more information than the level itself.
The one RSI signal worth the name: divergence
Divergence is when price and RSI disagree. Price makes a higher high while RSI makes a lower high — each new price level is being bought with less force. That is a warning, not an entry: divergences can persist for many candles while the trend grinds on, so professionals treat it as a reason to tighten stops and take partial profits, not to flip position. The brutal base rates: a single RSI reading has no edge in a trend, divergence against a strong trend fails often, and the cleanest use is the boring one — in ranging markets, fading RSI touching the 30/70 extremes back toward the middle, with a stop that admits the range has broken.
Frequently asked questions — RSI
Why does RSI stay overbought so long in trends?
The formula normalizes recent gains; a persistent trend keeps the ratio pinned. That is why range-trading rules fail when applied to trends.
Is RSI above 70 a sell signal?
No. It is a strength reading. In trends RSI can stay above 70 far longer than accounts of early sellers survive. Treat 70/30 as context, and act on exits from the zones or divergence, not the level alone.
What RSI settings should I use?
The default 14-period on your trading timeframe is where the literature and the backtests live. Shorter periods react faster and lie more; anything exotic needs its own tested evidence before it touches real money.
Which settings do traders change?
14 is standard; shorter (7) is twitchier for scalping, longer (21) smoother for swing. Fewer changes, more consistency.
Related terms — RSI
Related tools — RSI
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