Definition
The Relative Strength Index is a momentum oscillator, developed by Welles Wilder, that compares the size of recent gains with recent losses and scales the result between 0 and 100. Its default setting uses 14 periods.
How it works
RSI = 100 − 100 ÷ (1 + RS), where RS is the average gain divided by the average loss over the lookback window, so it measures how one-sided recent moves have been. Wilder's smoothing updates each average as (previous average × 13 + current value) ÷ 14 for a 14-period setting.
Readings above 70 are conventionally called overbought and below 30 oversold, yet in strong trends RSI can stay beyond those levels for long stretches. At least 15 closes are needed to produce the first 14-period value, because 14 price changes require 15 prices.
Formula / convention
RSI = 100 − 100 ÷ (1 + RS); RS = Average gain ÷ Average loss; Wilder average = (Previous average × (N − 1) + Current value) ÷ N
Illustrative example
Illustrative: 14-period averages of 0.60 for gains and 0.40 for losses give RS = 1.5 and RSI = 100 − 100 ÷ 2.5 = 60. If the window had no down closes, the average loss is 0, RS is undefined and RSI is set to 100 by convention; with no up closes RSI is 0, and with completely flat prices both averages are 0, so RSI is undefined and platforms treat it differently.
What to watch for
Overbought is not a prediction that price will fall: RSI can stay above 70 for weeks in a persistent uptrend, and its values depend on the smoothing method and period length, which differ between platforms. Treat it as a description of recent momentum, and test any RSI rule with trading costs before relying on it.