Relative Strength Index (RSI)
A 0-100 momentum oscillator measuring the speed and magnitude of recent price changes.
Definition
Developed by J. Welles Wilder in 1978, RSI compares the magnitude of recent gains to recent losses to gauge whether an asset is overbought or oversold. Values above 70 are traditionally considered overbought, below 30 oversold, with 50 as the neutral line. RSI is most useful in range-bound markets and gives many false signals in strong trends, where it can stay above 70 (or below 30) for weeks. Divergences — price making a new high while RSI does not — are a popular leading-reversal signal.
Formula
RSI = 100 - (100 / (1 + RS))
RS = Average Gain over N periods / Average Loss over N periods
Default N = 14. Averages are typically smoothed (Wilder’s smoothing).Worked example
Over the last 14 days, the average up-day move is +0.8% and the average down-day move is -0.3%. RS = 0.8 / 0.3 = 2.67. RSI = 100 - (100 / 3.67) = 72.7 — entering overbought territory and warranting caution.
How ARIA Analyst uses it
ARIA's Technical Agent uses RSI(14) along with multi-timeframe RSI(7) and RSI(21) and flags bullish/bearish divergences automatically in the Trade Setup module.
Related terms
MACD
Moving Average Convergence Divergence — a trend-following momentum indicator built on two EMAs.
Bollinger Bands
A volatility envelope: 20-period moving average plus and minus two standard deviations.
Average True Range (ATR)
A volatility measure based on the daily true range, used widely for stop placement and sizing.
ADX
Average Directional Index — measures trend strength from 0 to 100 without indicating direction.
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