Updated · BreakPoint Research Desk
RSI (Relative Strength Index) is a momentum oscillator from 0 to 100 that compares the size of recent gains with recent losses, usually over 14 periods. Readings above 70 are traditionally called overbought and below 30 oversold, and the 50 line separates stronger from weaker momentum.
Traders use RSI mainly to judge the strength of a trend and the timing of pullbacks — not as automatic buy and sell signals. In a strong uptrend RSI can stay above 70 for a long time, and pullbacks often stop around 40–50 rather than reaching 30.
Key takeaways
The Relative Strength Index was introduced by J. Welles Wilder Jr. in his 1978 book New Concepts in Technical Trading Systems. It is plotted in a separate panel under the price chart as a single line that moves between 0 and 100.
Despite the name, RSI does not compare a stock with the market — that is a different idea called relative strength. RSI compares a stock only with its own recent behaviour.
| RSI reading | Traditional label | What it more often means in practice |
|---|---|---|
| Above 70 | Overbought | Strong upward momentum; can persist in trends |
| 50–70 | Bullish momentum | Buyers in control, healthy uptrend zone |
| Around 50 | Neutral | Balance between gains and losses |
| 30–50 | Bearish momentum | Sellers in control, or a pullback within an uptrend |
| Below 30 | Oversold | Strong downward momentum; can persist in downtrends |
You never need to calculate RSI by hand — every charting platform does it — but knowing the idea explains its behaviour.
1. Separate gains and losses
For each of the last 14 candles, record the up-move if the close rose and the down-move if it fell.
2. Average them
Calculate the average gain and average loss. Wilder’s method smooths these so each new candle updates the averages gradually.
3. Compare
Relative strength (RS) = average gain ÷ average loss.
4. Scale to 0–100
RSI = 100 − 100 ÷ (1 + RS). When gains dominate, RSI approaches 100; when losses dominate, it approaches 0.
A stock that closes higher almost every day keeps its average loss tiny, so RSI stays elevated. That is exactly what a strong trend looks like — which is why 70 is not a reliable sell level.
Many technical analysts observe that RSI shifts its range with the trend. In a healthy uptrend, pullbacks tend to hold around 40–50 and rallies push above 70. In a downtrend, bounces tend to fail around 50–60 and declines push below 30. When the range changes, the trend may be changing too.
Instead of buying “oversold” stocks in a downtrend, trend traders wait for a stock already in an uptrend to pull back until RSI cools to the 40–50 zone near a support level, then look for price to turn up.
Bearish divergence: price makes a higher high while RSI makes a lower high. Bullish divergence: price makes a lower low while RSI makes a higher low. Both suggest the move is losing momentum.
A breakout from a base with RSI rising through 60 shows momentum behind the move; a breakout while RSI is diverging lower is weaker.
| Setting | Effect | Typical use |
|---|---|---|
| 14 (default) | Balanced; the most widely watched | Most traders, most timeframes |
| 7–9 | Faster, more extreme readings, more noise | Short-term and intraday traders who accept more false signals |
| 21–25 | Smoother, fewer extremes | Swing and positional traders |
| Levels 80/20 instead of 70/30 | Fewer overbought/oversold readings | Volatile stocks and strong trends |
Changing the period is less important than matching the timeframe to your holding period. RSI on a 5-minute chart describes the last hour; on a daily chart, the last few weeks.
A stock breaks out of a three-month range with the sector strong. Daily RSI climbs to 74. A trader shorts it because it is “overbought”; another waits for a pullback.
The breakout had strong momentum, so RSI stayed above 70 for more than a week while price rose. The short was stopped out. When the stock finally rested, RSI cooled to the mid-40s while price retested the top of the old range — a pullback in a trend rather than a reversal. That combination of level plus cooled momentum was the lower-risk entry.
Overbought described strength. The useful RSI signal was the reset to the middle of the range at a price level, not the reading above 70.
Selling or shorting just because RSI is above 70
In trends RSI can stay overbought for weeks. Without a break in price structure, “overbought” is not a reason to short.
Buying just because RSI is below 30
Oversold stocks in downtrends can keep falling. Catching falling stocks on RSI alone is one of the most common beginner losses.
Using RSI without looking at price
RSI is derived from price. Support, resistance and trend on the chart should come first; RSI adds context.
Treating divergence as an entry
Divergence can persist through several higher highs. Wait for price to break a level before acting on it.
Constantly changing settings
Tweaking the period until RSI “fits” past trades creates settings that fail on new data.
Confusing RSI with relative strength
RSI measures a stock against itself. Comparing a stock with Nifty is a different tool.
| Combine with | Why | Example |
|---|---|---|
| Support and resistance | Gives RSI signals a location | RSI cooling to 45 while price retests a breakout level |
| Moving averages | Defines the trend RSI is measured within | Price above a rising 50-day EMA, RSI pullback to 40–50 |
| Relative strength vs Nifty | Separates strong stocks from merely stretched ones | RS line at a high while RSI resets |
| Volume | Shows participation behind the momentum | Breakout with RSI above 60 and above-average volume |
| Market trend | Momentum signals fail more in weak markets | Take RSI pullback buys only when the index is not in a downtrend |
Checking RSI across hundreds of stocks one chart at a time is slow. BreakPoint surfaces displayed indicator values and market context so you can focus on the charts worth reading. How any scanner chooses its stocks stays private.
Top performers across common indicators
BrkView includes top-performer lists across widely used indicators such as RSI, MACD and ADX, alongside industry strength and rotation.
End-of-day presets you can verify
Scanner Positional offers prepared presets such as oversold bounce, with the technical columns shown so you can check each result on the chart.
Know the trend RSI sits inside
Index Trend shows the direction of the market across timeframes — the context that decides whether overbought means strength or exhaustion.
BreakPoint’s built-in charts and TradingView integration let you add RSI to any symbol and save your layout, on the web and in the mobile app.
Beginners
Learn RSI as a momentum gauge and unlearn “70 = sell, 30 = buy” before it costs money.
Swing traders
RSI range shifts and pullback resets are among the most practical uses on daily charts.
Intraday traders
Useful on 5–15 minute charts for momentum confirmation, with more noise; always pair with levels.
Not ideal for
Traders looking for a single-indicator system — RSI alone does not provide one.
Pick by workflow, not by feature count. You can change plans later.
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RSI, the Relative Strength Index, is a momentum oscillator developed by J. Welles Wilder Jr. It compares average gains with average losses over a period, usually 14, and scales the result from 0 to 100.
Not by itself. Above 70 shows strong upward momentum, and in trending stocks RSI can stay there for a long time. Many traders treat it as a sign of strength and wait for price structure to break before considering an exit.
Not by itself. Oversold readings in a downtrend often precede further falls. A reversal needs confirmation from price, such as reclaiming a level, before RSI oversold becomes useful.
RSI 50 means recent average gains and losses are balanced. Traders often treat holding above 50 as bullish momentum and staying below 50 as bearish momentum.
The default 14 is the most widely used and a good starting point. Shorter settings such as 7–9 react faster but give more false signals; longer settings such as 21 are smoother for swing trading.
Divergence is when price and RSI disagree. Bearish divergence is a higher high in price with a lower high in RSI; bullish divergence is a lower low in price with a higher low in RSI. It suggests fading momentum but is not a trade signal alone.
In an uptrend RSI often stays roughly between 40 and 80. Traders watch for pullbacks where RSI cools to the 40–50 area near support, then look for price to turn up as a lower-risk entry.
Yes, on 5 to 15 minute charts, but readings are noisier. Intraday traders usually use RSI to confirm momentum around levels such as VWAP or the previous day high rather than trading RSI levels directly.
RSI compares a stock with its own recent gains and losses. Relative strength compares a stock’s performance with a benchmark such as Nifty. They answer different questions and are often confused because of the name.
Neither is better; they describe momentum differently. RSI is bounded from 0 to 100 and highlights stretched moves; MACD is based on moving averages and highlights trend changes. Many traders use one momentum indicator and focus on price.
Use BrkView and Scanner Positional to narrow the market, then read RSI where it matters — at a level, inside a trend.
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Terms used here: RSI (Relative Strength Index) · Relative Strength (RS) · MACD · Momentum · Support & Resistance · Pullback · EMA (Exponential Moving Average)
This article is for education only. It is not investment advice or a recommendation to buy or sell any security. Trading involves risk of loss; examples are hypothetical and past behaviour of any pattern does not guarantee future results.