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Technical Indicators

Thu, Jun 5th, 2025
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The descriptions, formulas, and parameters shown below apply to both Interactive Charts and Snapshot Charts, unless noted. Please note that some of the parameters may be slightly different between the two versions of charts.
Studies noted with * are available only in Snapshot Charts and those noted with ^ are available only in Interactive Charts.
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Relative Strength Index

Indicator Type: Standalone

The RSI is another J. Welles Wilder, Jr. trading tool. The main purpose of the study is to measure the market's strength and weakness. A high RSI, above 70, suggests an overbought or weakening bull market. Conversely, a low RSI, below 30, implies an oversold market or dying bear market.

Computation

The RSI uses the Welles Wilder average in its calculation. (Please refer to the calculation for the Relative Strength Index Modified study). This formula converts the time period to a fraction using the formula EMA% = 2/(n + 1) where n is the number of days. So rather than add the values and divide by 10, the modified study calculates 9/10th of the previous value and adds 1/10th of today's value.

While you can use the RSI as an overbought and oversold indicator, it works best when a failure swing occurs between the RSI and market prices. For example, the market makes new highs after a bull market setback, but the RSI fails to exceed its previous highs.

Another use of the RSI is divergence. Market prices continue to move higher/lower while the RSI fails to move higher/lower during the same time period. Divergence may occur in a few trading intervals, but true divergence usually requires a lengthy time frame, perhaps as much as 20 to 60 trading intervals.

Selling when the RSI is above 70 or buying when the RSI is below 30 can be an expensive trading system. A move to those levels is a signal that market conditions are ripe for a market top or bottom. It does not indicate a top or a bottom. A failure swing or divergence accompanies your best trading signals.

The RSI exhibits chart formations as well. Common bar chart formations readily appear on the RSI study. They are trendlines, pennants, flags, head and shoulders, double tops and bottoms, and triangles. In addition, the study can highlight support and resistance zones.

Parameters:

  • Period (14) - the number of bars, or period, used to calculate the RSI study.
  • Average (MA): the type of moving average to apply to the study
  • PeriodAvg (5): the number of bars, or period, to use for the moving average
  • Oversold (30) - The level at which the RSI is oversold.
  • Center (50): The location of the center line
  • Overbought (70): The level at which the RSI is overbought.

Sample Chart:

Relative Strength Index
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