The Relative Strength Index is a momentum oscillator bounded between 0 and 100 that compares smoothed price gains and losses over a selected period. Fourteen periods and the 70/30 levels are popular conventions. Crossing a threshold or observing divergence does not ensure a reversal; readings can remain extreme during a strong trend. See Oscillators and momentum.
Example. In an illustrative EUR/USD H1 scenario, price rises from 1.0820 to 1.0890 and RSI(14) reaches 78. Selling solely because RSI crossed 70 can lose if the trend continues. An exit at a stop-loss is different from a margin stop-out. A later price high of 1.0925 accompanied by RSI of 71 rather than 78 illustrates divergence, not a guaranteed reversal. These indicator readings are scenario assumptions, not values reconstructed from a supplied price history.
The same formula, different data
The timeframe, quotation source, breaks and smoothing method affect RSI. FX can also have gaps and interruptions depending on the instrument and provider. Test the rule on a specified sample instead of assuming that thresholds transfer unchanged between markets.
Calculation from smoothed changes
Under Wilder’s convention, positive and negative change magnitudes are recorded separately, with zero on the opposite side. A common initialisation uses the arithmetic mean of the first n changes on each side; subsequent averages update with weight 1/n. Assumed average gain 0.0006 and loss 0.0004 give RS = 1.5 and RSI = 100 − 100/(1+1.5) = 60.
Zero and midpoint readings
Positive gains with zero losses conventionally approach 100; the reverse gives zero. If both averages are zero, check the program’s convention rather than divide zero by zero. RSI = 50 means equal smoothed magnitudes, not absence of every form of trend.
Source of the definition
TradingView: RSI calculation. Documentation of the construction or concept is not a guarantee of strategy results.
FAQ
Which settings are best?
Fourteen periods and the 70/30 levels are popular conventions, not an optimum for every market. Tuning requires separate validation and control of fitting to historical noise.
What does divergence mean?
A disagreement between the price path and the indicator, such as a higher price high with a lower RSI reading. It does not, by itself, guarantee a reversal or a profitable entry.
Does RSI below 30 mean buy?
Not on its own. The indicator can remain in an extreme region for a long time. Additional confirmation also needs testing as part of a complete rule.
Should I use RSI or MACD?
They describe different transformations of prices. Evaluate the tool within a strategy after costs. Using both does not necessarily provide independent information.
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