What is it?

The Relative Strenght Index or RSI is a momentum indicator that compares the magnitude of recent gains to recent losses in order to determine overbought and oversold conditions.

How is it calculated?

RSI = 100 - 100/(1 + RS*)
*Where RS = Average of x days' up closes / Average of x days' down closes.

How to use it:

The RSI is an oscilator and as such, it has upper and lower limits.
When th RSI goes above 70 it is considered overbought, meaning that it may be getting overvalued and is a good candidate for a pullback. Likewise when it goes below 30 it is considered oversold and therefore it's likely to be undervalued.





















One important thing to consider is that just because a stock is oversold or overbought it means that it is a buy or a sell respectively. Any asset can stay oversold or overbought for extended periods of time. It is much better to either buy when the stock is coming out of oversold and sell when it's coming out of overbought.

Treat the RSI just as what it is, an indicator. While an oversold stock is more likely to bounce, it doesn't mean that it HAS to do it soon. Likewise an overbought stock doesn't always has to pullback soon.