The Relative Strength Index (RSI) was developed by J. Welles Wilder and introduced in his 1978 book New Concepts in Technical Trading Systems. It remains one of the most widely referenced momentum indicators in technical analysis.

The standard formula is:

RSI(N) = 100 × (Sum of closing gains over N periods) ÷ (Sum of absolute closing moves over N periods)

The default look-back period is typically 14 sessions.

Rather than indicating what a stock is worth, RSI addresses a different question: over the past N sessions, which side of the market — buyers or sellers — has had the greater influence, and at what pace?

• RSI always oscillates between 0 and 100.

• Higher readings indicate that buying pressure has dominated recent price action; lower readings indicate that selling pressure has dominated.

• It does not measure the direction of price — it measures the rate of change and the relative balance of forces behind recent moves.

Market interpretation: Buying activity has been unusually intense over the recent period. Price has advanced rapidly, indicating relatively strong recent upward momentum.

Analytical note: An overbought reading suggests that upward momentum may be overstretched and that near-term consolidation or a pullback is possible. It does not, by itself, signal that a reversal is imminent or certain.

Market interpretation: Selling activity has been unusually intense. Price has declined rapidly, indicating relatively strong recent downward momentum.

Analytical note: An oversold reading suggests that downward momentum may be overstretched and that a technical bounce or stabilisation is possible. As with overbought readings, this should be read as a condition to monitor rather than a directional signal on its own.

Under normal conditions, RSI and price tend to move in the same direction — when price makes a new high, RSI typically does as well, and vice versa.

Divergence occurs when price and RSI move in opposing directions. In technical analysis, divergence is widely regarded as a potential warning signal that the current trend may be losing momentum and that a reversal could follow.

Chart pattern: Price makes a series of successively higher highs; RSI peaks at successively lower levels across those same price highs.

What it may indicate: Despite price continuing to advance, the rate of change behind each new high is diminishing. Buying pressure is becoming less forceful with each successive move up — a pattern that can precede a trend reversal or meaningful correction.

Analytical application: Bearish divergence is a signal for caution rather than an automatic sell instruction. Investors monitoring open positions may use it as a prompt to review risk levels and assess the signal alongside other relevant technical and market factors.

Chart pattern: Price makes a series of successively lower lows; RSI troughs at successively higher levels across those same price lows.

What it may indicate: Although price continues to decline, each successive low is being made with less selling force behind it. Downward momentum is diminishing — a pattern that can precede a stabilisation or reversal to the upside.

Analytical application: Bullish divergence is a signal worth monitoring rather than an automatic buy instruction. It may prompt investors to watch for technical stabilisation signals in price action before drawing further conclusions.

RSI is a well-established tool for assessing price momentum and identifying potential conditions of excess in either direction. However, as with all technical indicators, it has limitations:

• No single indicator produces reliable signals in all market conditions.

• Overbought and oversold readings indicate a condition to be aware of — they do not constitute a prediction that price will reverse at any particular level or time.

• Divergence signals, while analytically useful, are more meaningful when confirmed by other factors such as price pattern, volume, and sector context.

RSI is most effectively used as one input within a broader analytical framework rather than as a standalone decision-making tool.

To view RSI for any U.S.-listed stock in the BIT App: go to [Stocks] → select a stock → open the price chart → enable [RSI] in the indicator menu.

Risk Disclosure

This article is intended solely for investor education and the discussion of technical analysis concepts. It does not constitute investment advice, a securities recommendation, or an inducement to engage in any trading activity. Technical indicators have inherent limitations, and past performance or historical patterns are not indicative of future price behaviour. Financial markets carry significant volatility. Investors should make independent trading decisions based on their own assessment of the risks involved and their individual risk tolerance.