Understanding the RSI Indicator: A Complete Guide

What is the RSI Indicator?

The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and magnitude of price movements. Developed by J. Welles Wilder Jr. in 1978, it oscillates between 0 and 100 and is one of the most widely used technical indicators.

How RSI is Calculated

RSI is calculated using the formula: RSI = 100 - (100 / (1 + RS)), where RS (Relative Strength) is the average gain divided by the average loss over a specified period, typically 14 days.

Reading RSI Signals

Overbought (Above 70)

When RSI rises above 70, the stock may be overbought, suggesting a potential pullback or reversal. However, in strong uptrends, RSI can remain above 70 for extended periods.

Oversold (Below 30)

When RSI drops below 30, the stock may be oversold, indicating a potential bounce. In strong downtrends, RSI can stay below 30 for a while.

Divergence

RSI divergence occurs when price makes a new high but RSI makes a lower high (bearish divergence), or when price makes a new low but RSI makes a higher low (bullish divergence).

RSI Trading Strategies

Classic Overbought/Oversold: Buy when RSI crosses above 30, sell when it crosses below 70.

Centerline Crossover: Use 50 as a trend filter — above 50 indicates bullish momentum, below 50 indicates bearish.

RSI with Moving Averages: Combine RSI signals with 50-day and 200-day moving average crossovers for confirmation.

How Aphelion AI Uses RSI

Aphelion AI integrates RSI analysis with dozens of other technical and fundamental indicators to provide comprehensive stock analysis. Our AI model weighs RSI signals in context with volume, trend strength, and market conditions to generate more accurate insights.