In plain English
What Relative strength index means
RSI is usually calculated over 14 periods, although the length can be changed. A common formula is RSI = 100 − 100/(1 + RS), where RS is average gain divided by average loss over the chosen period. Readings above 70 and below 30 are commonly labeled overbought and oversold, respectively, but those labels describe the indicator’s condition rather than a forecast.
Why it matters
RSI provides a standardized way to compare recent upward and downward momentum on a chart. It can remain high during a strong rise or low during a strong decline, so using a threshold alone can be misleading. In forex or CFDs, an apparently extended reading does not remove the risk of further price movement, leverage losses, or slippage.
Example
Over a simplified lookback, average upward changes equal 0.0060 and average downward changes equal 0.0020. RS is 3. RSI equals 100 − 100/(1 + 3), or 75. A reading of 75 is above the commonly cited 70 threshold, but it does not require the price to fall.
Quick answers
Common questions
What does an RSI reading above 70 mean?+
It means recent average gains have been large relative to recent average losses under the selected calculation. Many analysts call that overbought, but it does not mean the market must immediately decline or that a short position is appropriate.
Why might RSI values differ between platforms?+
Platforms may use different price inputs, session boundaries, initial averaging methods, or data feeds. Check the selected period, the calculation convention, and whether the indicator uses close, bid, ask, or another price series.
Sources