Chart School / Thinking About Strategies & Risk
RSI and momentum
Lesson 8 of 14 · about 1 min read, plus practice · Glossary
The Relative Strength Index, or RSI, summarizes the balance of recent gains and losses on a scale from 0 to 100. The calculation and chosen lookback matter; a common lookback is 14 periods. Readings above 70 or below 30 are conventional reference areas, often called overbought and oversold. Those words describe momentum conditions, not whether an asset is fundamentally cheap or expensive. Strong trends can remain near an extreme. RSI is derived from prices and is not independent evidence of future returns.
Worked fictional example
In a fictional worksheet, River has a supplied RSI reading of 82 while price is $95. A later price of $105 shows why the high reading did not require an immediate reversal. No RSI is calculated from this lesson’s short diagram.
On a small screen, scroll the chart horizontally to read every label.
Observation order / daily periods →
Accessible data table and chart description
Separate fictional daily OHLCV illustration for RSI and momentum. Hollow body: close at or above open; filled body: close below open. Table provides exact values.
| Date UTC | Open | High | Low | Close | Volume |
|---|---|---|---|---|---|
| 2024-01-01 | 70 | 71 | 69 | 70 | 100 |
| 2024-01-02 | 70 | 79 | 69 | 78 | 120 |
| 2024-01-03 | 78 | 86 | 77 | 85 | 0 |
| 2024-01-04 | 85 | 96 | 84 | 95 | 160 |
| 2024-01-05 | 95 | 96 | 93 | 94 | 180 |
| 2024-01-06 | 94 | 106 | 93 | 105 | 200 |
Legend: hollow body = close ≥ open; filled blue body = close < open. Wick = low to high. Direction is also readable from the table, without color.
What could invalidate this interpretation?
The interpretation that an extreme requires a reversal fails when price continues in the same direction.
A counterexample
A reading below 30 can be followed by more losses instead of a bounce. Different lookbacks can give different readings.
Check your understanding
Further learning
Original FinanceFD explanations and drawings. For additional context, see Fidelity’s overview of technical analysis, Fidelity’s RSI guide and Investor.gov’s investing introduction.
Learning progress
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