RSI is on almost every trader's chart and misread by most of them. Here is what it actually tells you.
What the RSI does
The Relative Strength Index compares the size of recent gains to the size of recent losses, producing a number between 0 and 100.
High readings mean recent movement has been strongly upward. Low readings mean the opposite. That is genuinely all it says.
Reading it
| Reading | Conventional name | What it actually means |
|---|---|---|
| Above 70 | Overbought | Recent moves have been strongly up |
| 30 to 70 | Neutral | No strong momentum either way |
| Below 30 | Oversold | Recent moves have been strongly down |
The words overbought and oversold cause more losses than any other pair of terms in technical analysis. They do not mean too high or too low. In a strong trend, RSI can sit above 70 for a long time while price keeps rising.
How it is used well
- As context, not a signal. RSI tells you the character of recent movement; it does not tell you what to do.
- Looking for divergence — price making a new high while RSI does not, which can hint at fading momentum.
- Alongside structure, such as support and resistance, rather than on its own.
The common mistake
Selling every time RSI crosses 70 and buying every time it crosses 30. In a ranging market that sometimes works. In a trending market it means fighting the trend repeatedly — which is how a lot of beginners discover the difference.
Practise it free
The fastest way to make any of this concrete is to watch it happen. A demo account uses virtual funds, needs no deposit, and behaves exactly like live trading.