What RSI measures
RSI measures the strength of recent upward price changes relative to recent downward price changes over a selected lookback period.
The common default is 14 periods, but a 14-period RSI means 14 candles of the chart being analyzed: 14 hours on a 1-hour chart and 14 days on a daily chart.
How RSI is calculated
Wilder's RSI is derived from smoothed average gains and average losses. Relative Strength (RS) is average gain divided by average loss, and RSI is then expressed as 100 − [100 / (1 + RS)].
The smoothing process means RSI depends on the sequence of previous observations, not only the current candle.
What a high RSI actually means
An RSI reading of 75 indicates strong recent upside momentum relative to downside momentum. It does not mathematically mean that price must fall next.
70 and 30 are context—not automatic trades
Readings above 70 are commonly described as overbought and readings below 30 as oversold. These labels describe unusually strong recent momentum; they are not guaranteed reversal signals.
During persistent trends, RSI can remain elevated or depressed for extended periods.
Strong trends can maintain high RSI while price continues higher. The same applies to low RSI during sustained declines.
RSI divergence
Bullish divergence is commonly described when price forms a lower low while RSI forms a higher low. Bearish divergence describes price making a higher high while RSI makes a lower high.
Divergence shows disagreement between price movement and the oscillator. It does not specify exactly when or whether price will reverse.
Timeframe and RSI
RSI can tell a different story on different timeframes because each timeframe uses a different sequence of candles.
A trader may therefore use higher-timeframe RSI for broader momentum context while examining lower-timeframe price structure for execution.
Common RSI mistakes
Automatically selling above 70
Overbought is a momentum description, not an instruction to short.
Automatically buying below 30
Oversold markets can continue falling during strong downtrends.
Ignoring timeframe
A 15-minute RSI and 4-hour RSI measure different price sequences.
Treating divergence as a guaranteed reversal
Divergence can persist or fail before price changes direction.
Key takeaways
- RSI measures recent momentum on a 0–100 scale.
- The traditional default lookback is 14 periods.
- 70/30 readings describe momentum conditions rather than guaranteed reversals.
- RSI divergence can provide context but does not guarantee a turning point.
- Timeframe matters because RSI is calculated from the candles of that timeframe.
Sources & further reading
This lesson is educational material. Market structure, exchange rules, fees, margin requirements and derivatives mechanics can differ by venue and can change over time. Verify current rules with the venue you use.