RSI
Momentum on a 0 to 100 scale: how strong recent gains have been against recent losses.
5 minLesson 6 of 102 questions at the end
Key ideas
- 1RSI compares the size of recent up moves with recent down moves, over 14 candles by default, on a scale from 0 to 100.
- 2Above 70 is often called overbought; below 30, oversold. Lance Trade’s chart marks 70, 50 and 30.
- 3Overbought doesn’t mean it will fall. In a strong trend RSI can stay above 70 for a long time.
- 4A divergence (price makes a new high, RSI doesn’t) shows momentum fading, not a reversal for certain.
How it works
Formula
RSI = 100 − 100 ÷ (1 + average gain ÷ average loss)
Average gain and loss over the last 14 candles, smoothed.
When recent candles have mostly risen, RSI is high; when they have mostly fallen, it is low. 50 means gains and losses have been about even.
RSI under the candles
Made-up candles. In the rally RSI stays high for a long time; in the sell-off it sits low.
Made-up 1h candlesWorked out like Lance Trade’s chart
O 86,843H 87,700L 86,823C 87,501RSI 66.1
Length14
Reading it
- Above 70 is often called overbought, below 30 oversold. Both mean a strong move, not that it must turn.
- Divergence: the price makes a new high but RSI doesn’t. Momentum is fading, which sometimes comes before a turn.
- In strong trends RSI can stay above 70 (or below 30) for a long time.
What it can’t do
Common mistakes
- Shorting just because RSI is above 70.
- Using RSI alone, without looking at the trend it sits in.
Check yourself
Question 1 of 2
RSI is at 78 in a strong uptrend. What does that tell you?
Keys 1 to 3 pick an answer, Enter checks it
Try it in Lance
Add RSI from Indicators: it opens in its own pane under the candles, with 70 and 30 marked.
Add RSI