The Relative Strength Index (RSI) is a technical analysis tool that examines the momentum of price changes in order to gauge whether an asset is undervalued, overvalued, or neither. RSI values range from 0-100 and are displayed as an oscillator on a set of x (time) and y (RSI) axes. The RSI oscillator is typically plotted beneath an asset’s price chart.
An asset’s RSI can be calculated by first dividing 100 by (1+(Average Gain-Average Loss)), and then subtracting this value from 100. Although 14-period averages are typically used for this calculation, the number of periods used may be altered to fit one’s trading strategy.
Generally, an RSI over 70 will indicate that an asset is overvalued, while an RSI under 30 will indicate an asset is undervalued. These benchmarks can be adjusted to account for bullish or bearish trends. Additionally, an asset’s RSI is often used in conjunction with its Moving Average Convergence Divergence (MACD) to provide a broader technical picture.