RSI: The Relative Strength Index

In short

How RSI is calculated from average gains and losses, how to read the 0-100 scale, and why the 70/30 thresholds are reference points, not rules.

RSI turns a stock's recent gains and losses into a single number from 0 to 100 — a quick read on whether a move has gotten stretched.

How RSI is calculated and read

RSI compares the average size of a stock's up days to its down days over a lookback period (14 days is the traditional default), then converts that into a 0-100 scale:

RS (Relative Strength) = average gain on up days ÷ average loss on down days
RSI = 100 − [100 ÷ (1 + RS)]

A stock with mostly strong up days and only small down days scores near the high end; a stock with mostly sharp down days scores near the low end.

A worked example

A stock's 14-day average gain on up days is $2.10, and its average loss on down days is $0.70.


RS	2.10 ÷ 0.70 = 3
RSI	100 − [100 ÷ (1 + 3)] = 100 − 25 = 75

An RSI of 75 sits above the 70 level many traders use as a conventional 'overbought' threshold — recent gains have significantly outpaced recent losses over this stock's last 14 days.

RSI value	Common interpretation
80	Stretched to the upside — commonly read as 'overbought'
50	Roughly balanced between recent gains and losses
20	Stretched to the downside — commonly read as 'oversold'

Key takeaway: 70 and 30 are widely used reference lines, not fixed rules — a strongly trending stock can sit above 70 for a long stretch without reversing, and that's normal, not a malfunction.

RSI describes momentum on its own — pair it with the trend and volume context from earlier lessons, and with relative strength, covered next, before acting on it.

This lesson is educational content explaining standard technical-analysis concepts, not personalized investment or trading advice.