In plain English
What Relative strength index means
RSI is a chart indicator that converts recent price movement into a number, usually shown on a scale from 0 to 100. Traders use it to gauge momentum and to spot whether a market may be stretched after a strong run. The indicator does not measure value or fundamental strength; it measures the pace of recent price changes.
Why it matters
RSI can help traders compare momentum across instruments or time frames and look for divergence, overbought, or oversold conditions. It is commonly used with other tools, not by itself. Because it is based on recent price history, it can give misleading signals in strong trends or during abrupt news-driven moves.
Example
If RSI rises above a trader’s chosen threshold after several large up days, the trader may view momentum as strong. If price keeps making new highs while RSI makes lower highs, that is a bearish divergence. Simplified example: price and momentum are no longer rising together.
Quick answers
Common questions
What period does RSI use?+
The classic version uses 14 periods, but charting platforms may allow different settings.
Is RSI a buy or sell signal by itself?+
No. It is a momentum indicator, not a standalone trading signal.
Sources