Relative Strength Index (RSI)
Measure momentum with overbought and oversold thresholds.
What is RSI?
The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and magnitude of recent price changes on a scale from 0 to 100. Developed by J. Welles Wilder in 1978, RSI helps traders identify whether a security is potentially overbought (above 70) or oversold (below 30). The standard calculation uses a 14-period lookback window, comparing the average of up-close changes to the average of down-close changes.
How It Works
RSI is calculated as: RSI = 100 − 100 / (1 + RS), where RS = Average Gain / Average Loss over the lookback period. When prices rise consistently, the average gain dominates and RSI climbs toward 100. When prices fall, average loss dominates and RSI drops toward 0. Values above 70 suggest the asset may be overbought and due for a pullback; values below 30 suggest it may be oversold and due for a bounce.
How StockSkier Uses RSI
StockSkier uses RSI as one component of its multi-indicator entry scoring engine. RSI contributes to the weighted entry score alongside MACD and stochastic signals. For exit decisions, StockSkier monitors RSI for overbought conditions — when RSI exceeds 75 on intraday timeframes and other indicators confirm exhaustion, the model may trigger a partial or full exit on profitable positions. This confluence-based approach prevents acting on RSI alone, which can generate false signals in strong trends.
Key Takeaways
- ✓RSI ranges from 0 to 100, with >70 overbought and <30 oversold
- ✓Standard lookback period is 14 bars
- ✓Works best when combined with other indicators for confirmation
- ✓In strong trends, RSI can stay overbought/oversold for extended periods
- ✓StockSkier uses RSI as part of a weighted confluence score, not in isolation
Continue Learning
Important Disclosure
Educational content is for informational purposes only and does not constitute financial advice. Past performance does not guarantee future results. Always do your own research and consult a qualified financial advisor before making investment decisions.