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Relative Strength Index (RSI)

What RSI measures, how to read its 70 and 30 levels, its settings on MillionChart and a worked example on gold.

The Relative Strength Index compares the size of recent up moves with the size of recent down moves and turns the result into a number between 0 and 100. A high reading means the last bars rose more than they fell; a low reading means the opposite. J. Welles Wilder published it in 1978.

RSI (14, close) under gold, daily candles
RSI (14, close) under gold, daily candles

What it shows#

  • RSI — one line in its own pane, on a fixed scale from 0 to 100. Rising means the up moves are gaining weight over the down moves; falling, the reverse.
  • Overbought — a dashed level at 70.
  • Oversold — a dashed level at 30.
  • Zone fill — a faint tint between the two levels. There is no 50 line; read the middle from the scale.

How it is calculated#

For each bar the chart takes the change of the Source from the bar before and splits it into an up move and a down move (one of the two is zero). Both are smoothed over Length bars with Wilder's moving average, which weighs the past more than a simple average does. Then RSI = 100 − 100 / (1 + average up move / average down move): 100 when there were no down moves at all, 0 when there were no up moves.

How traders use it#

  • Above 70 the symbol is called overbought, below 30 oversold. On its own that is not a sell or buy signal: in a strong trend RSI can sit above 70 for weeks while the price keeps rising.
  • The return from the zone is read more often than the entry: RSI falling back under 70 after a stay above it, or rising back over 30.
  • The 50 level separates bullish from bearish momentum. In an uptrend RSI tends to hold the 40 to 80 range; in a downtrend 20 to 60.
  • Divergence: the price makes a higher high while RSI makes a lower high (or the mirror at a low) says the move is losing strength. It often comes early, so wait for the price to confirm.
  • Watch out for whipsaws: a short length such as 7 reacts fast but crosses the levels constantly, and RSI knows nothing about volume or the range of the bars.

Settings#

SettingDefaultWhat it changes
Length14Bars in the smoothing. Shorter is faster and reaches the levels more often; longer is calmer.
SourceCloseWhich price is measured: Open, High, Low, Close, Mid (HL2), Typical (HLC3) or Average (OHLC4).
Colours and style—The colours of the RSI line, the Overbought level, the Oversold level and the Zone fill; width and dash under Look in the Inspector.

Example on gold#

Gold has climbed, for example, from $4,100 to $4,350 over three weeks on the daily chart and RSI (14) reads 74. That alone is not a reason to sell; it says the rise has been fast. A trader who wants to buy the trend waits for RSI to drop back towards 50 while the price holds above $4,250 — a pullback inside a healthy uptrend. A trader looking for the top waits for a bearish divergence — a new high near $4,380 while RSI only reaches 68 — and then for a daily close under the last swing low.

What would invalidate it: the price keeps closing higher and RSI stays above 70. That is strength, not a reversal.

Add it to your chart#

  1. Click Indicators in the top strip (on the Pro screen, press I).
  2. Type rsi and click the indicator, or press Enter for the first result.
  3. Click its chip in the legend to open the Inspector and change the settings; drag the chip to reorder; the dot hides it; × removes it.