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Glossary

RSI (Relative Strength Index): Meaning and Formula

The Relative Strength Index (RSI) is a momentum oscillator from 0 to 100 that compares the size of recent gains with recent losses, usually over 14 candles. Readings above 70 are commonly called overbought and below 30 oversold. On TradingLead, add it from the chart's Indicators dialog by searching 'Relative Strength Index'.

Definition

The Relative Strength Index (RSI), developed by J. Welles Wilder, is a momentum oscillator that measures how strong recent up-moves are compared with recent down-moves. It is plotted in a separate pane on a fixed scale from 0 to 100.

Formula

For a period N (usually 14):

  1. For each candle, compute the change from the previous close. Positive changes are gains; negative changes (as positive numbers) are losses.
  2. Compute the average gain and average loss over N candles using Wilder's smoothing (a type of moving average where each new value = (previous average × (N − 1) + current value) ÷ N).
  3. RS = Average gain ÷ Average loss
  4. RSI = 100 − 100 ÷ (1 + RS)

Example: if average gain is 2 and average loss is 1, RS = 2 and RSI = 100 − 100 ÷ 3 ≈ 66.7. If there were no losses at all, RSI would be 100.

How traders read it

  • Overbought / oversold: above 70 is commonly called overbought, below 30 oversold. Some traders use 80/20 for stronger filters.
  • Midline (50): RSI holding above 50 suggests bullish momentum; below 50, bearish momentum.
  • Divergence: price making a higher high while RSI makes a lower high can warn that momentum is fading (and the reverse for lows).
  • Trend ranges: in uptrends RSI often oscillates between about 40 and 80; in downtrends between about 20 and 60.

Common settings

SettingTypical value
Length14 (shorter such as 7–9 for faster signals)
SourceClose
Levels70 / 30, sometimes 80 / 20

Pitfalls

  • Overbought is not "must fall". Strong stocks can stay overbought for weeks.
  • Divergences fail often, especially in strong trends.
  • Timeframe matters: RSI on a 5-minute Bank Nifty chart says nothing about the daily trend.
  • Few candles: RSI needs enough history to settle; early values are unreliable.
  • Use RSI with price structure and risk management, not as a standalone signal.

How to add RSI on TradingLead

  1. Open a chart at tradinglead.in/charts.
  2. Click Indicators, search Relative Strength Index and click it. It opens in its own pane.
  3. Open its settings to change the length, source and levels. Related built-ins include Stochastic RSI and Connors RSI.

To combine RSI with your own rules, write a custom indicator in Indicator Studio using Pine (documented v5/v6 subset) or Python. Before relying on an RSI rule, simulate it with backtesting.

Educational content only — not investment advice.

Frequently asked questions

What does RSI above 70 mean?
It means recent gains have been much larger than recent losses. It is often called 'overbought', but in strong uptrends RSI can stay above 70 for a long time, so it is not a sell signal on its own.
What is the best RSI setting?
There is no best setting. 14 periods is the standard; shorter lengths like 7 or 9 react faster with more noise, longer ones are smoother. Test settings on your timeframe.
What is RSI divergence?
When price makes a new high but RSI makes a lower high (bearish divergence), or price makes a new low while RSI makes a higher low (bullish divergence). It hints that momentum is weakening, but often fails.

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