Relative Strength Index (RSI)

What it measures

The Relative Strength Index, introduced by J. Welles Wilder Jr. in 1978, compares the size of up-closes with the size of down-closes (14 bars by default) and scales the result from 0 to 100: near 100 means gains have dominated, near 0 means losses have.

StockVyze uses Wilder's original method, the same one TradingView and StockCharts use: the first average gain and loss are simple averages of the first period changes, and each later bar moves them 1/period of the way toward the latest gain or loss. Because each value builds on the one before, the earliest readings depend on where the loaded history starts and settle after a few times the period.

It is not the same as relative strength against a benchmark; for that, see Relative Performance.

How to read it

• 70 and 30. Readings above 70 are conventionally called overbought and below 30 oversold. In strong trends RSI can stay beyond these levels for a long time, so they describe momentum, not an automatic reversal.
• The 50 line. RSI holding above 50 is often read as bullish momentum, below 50 as bearish.
• Divergence. Price making a higher high while RSI makes a lower high suggests fading momentum (and the reverse at lows).

Common mistakes

• Shorting every reading above 70. In an uptrend, overbought readings are normal.
• Changing the period without re-checking the levels. A shorter period swings more and reaches 70 and 30 far more often.

Use it in a scan

Oversold stocks in a longer-term uptrend:

Copyrsi(14) < 30 and c > sma(200)

Momentum crossing back above 50:

Copycross_up(rsi(14), 50)

Inputs

Outputs

value

References

• J. Welles Wilder Jr., New Concepts in Technical Trading Systems (1978)