Indicators · Beginner

Understanding RSI

A reading of 75 means the up-moves over the last 14 bars added up to three times the down-moves. That is the whole claim.

Last reviewed 15 September 2026 by the MarketPro research desk · Editorial policy

In short

RSI divides the average size of gains by the average size of losses over a lookback period, normally 14, then scales the result onto a 0 to 100 line. Both averages use the full period as the divisor, so a reading of 75 means recent up-moves totalled three times the down-moves. Readings above 70 are labelled overbought and below 30 oversold, but both describe past momentum rather than value, and either can persist for weeks in a strong trend.

What to remember

RSI is a ratio in disguise. RS is average gain over average loss with both divided by the full period, so it reduces to total gains over total losses.
Overbought describes what has already happened. In a strong trend RSI can hold above 70 for dozens of bars without reversing.
Divergence between price highs and RSI highs carries information the price chart alone does not.
Shortening the period adds signals, not accuracy. RSI(7) reaches the extremes far more often and follows through no more reliably.

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The Relative Strength Index converts recent price changes into a single number between 0 and 100 by comparing the average size of up moves to the average size of down moves over a lookback period, normally 14. It is a measure of how one-sided recent movement has been. It is not a measure of value, and it is not a prediction.

What the number is actually computed from

Over the last 14 periods, separate the closes that finished higher than the previous close from the ones that finished lower. Add up the gains and divide by 14. Add up the losses, as positive numbers, and divide by 14 as well. Note the divisor: both are averaged over the full period, not over the number of up or down candles there happened to be. Divide the first result by the second and you have relative strength, RS. The index is then 100 - (100 / (1 + RS)).

That final step exists only to squash an unbounded ratio into a fixed scale. Everything meaningful happens in the ratio itself, which is why RSI tells you about the balance of recent movement and nothing else.

Working an RSI of 75 by hand

Take 14 hourly candles on EUR/USD. Nine closed higher, with gains totalling 150 pips. Five closed lower, with losses totalling 50 pips. Here is the step that catches people out: both sums are divided by the full 14 periods, not by the number of up or down candles, so the average gain is 150 over 14, which is 10.7 pips, and the average loss is 50 over 14, which is 3.6 pips.

RS is 10.7 divided by 3.6, which is 3. The division by 14 appears on both sides and cancels, so RS is simply the total of the gains over the total of the losses. The index is 100 minus 100 divided by 4, which is 75.

Now read what that sentence actually said. Over the last 14 hours, the up-moves added up to three times the down-moves. That is all a 75 means. It is a description of the fourteen candles behind you, stated as a ratio. Nothing in the calculation looks forward, and nothing in it knows where price is relative to a level, a session high, or last month's range.

Notice too how little it takes to move. If the next candle closes 40 pips higher, the gain total climbs, and if the candle rolling out of the back of the window was a down-candle, the loss total falls at the same time. A single strong bar can lift RSI several points, which is why the 70 line is crossed far more often than most beginners expect.

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Overbought is a statement about the past

The labels are the most misread part of the tool. Above 70 is conventionally called overbought and below 30 oversold, and both words imply an opinion about fair value that the arithmetic never expressed. A reading of 78 says up-moves have dominated. In a market that has just broken out, up-moves dominating is precisely what you would expect, and it can continue for weeks.

During the strongest legs of a trend, RSI routinely sits above 70 for dozens of consecutive bars. Selling each time it crosses back under 70 in that environment is a strategy for shorting a rising market repeatedly with a small stop. The failure is not in RSI. It is in treating a momentum description as a reversal signal.

Why divergence outlasts the 70 line

The more durable use of RSI is comparison rather than level. If price grinds 12 pips past a high it set eight sessions ago, but RSI reads 64 where it read 81 on the first attempt, the second push covered more ground on markedly weaker average momentum than the first. That gap is information the price chart alone does not contain.

It is still not a trigger. Divergence can persist through several further highs before anything turns, and the swing high you are measuring from only becomes a swing high once price has moved away from it. Treat it as a reason to tighten management or to stop adding, not as a reason to reverse. The mechanics of both regular and hidden divergence are worth learning properly before acting on either.

Period length changes the signal count, not the edge

Setting	Behaviour	Consequence
RSI(7)	Reaches 70 and 30 frequently	Many signals, most without follow-through
RSI(14)	The default convention	Widely watched, moderately responsive
RSI(21)	Rarely reaches the extremes	Fewer signals, later confirmation

Shortening the period does not make the indicator sharper. It makes it noisier, and it moves the frequency of readings without changing what a reading means. If a 14-period RSI is producing signals you do not act on, the answer is a filter on which signals qualify, not a smaller number in the settings box.

Three things to do with an RSI reading

Use it to grade a pullback, not to call a top. In an established uptrend, RSI dipping to 40 and turning up describes a pause that has run its course. That is a more useful question than whether 78 is too high.
Check the trend before you act on an extreme. An oversold reading inside a downtrend is the trend working, not an opportunity.
Define the loss first. Momentum readings say nothing about how far price can travel against you, so the stop and the size come from volatility and account risk, as the risk management guide sets out, and the lots come from the position size calculator.

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Written and reviewed by the MarketPro research desk

MarketPro is a trading-signal and trading-education app operated by Harajuku Holdings LTD (Cyprus). Our signal desk publishes and tracks every trade idea in-app, and every page here is checked against the app's live behaviour before publishing. Last reviewed 15 September 2026. How we produce signals and content · About MarketPro

FAQ

Understanding RSI: questions

What does an RSI of 70 actually mean?

It means the average gain over the lookback period is roughly 2.33 times the average loss, since an RS of 2.33 produces an index value of 70. It is a description of how one-sided recent movement has been, expressed on a fixed scale. It carries no information about whether price is expensive or about what happens next.

Can RSI stay overbought for a long time?

Yes, and it regularly does. During a strong directional move the average up-candle stays much larger than the average down-candle, which keeps the index pinned above 70 for long stretches. Treating each cross back below 70 as a sell signal in that environment means repeatedly taking positions against the prevailing direction.

Is RSI 14 the best setting?

It is the default and the most widely watched, which gives it some value simply because many participants see the same readings. Shorter settings react faster and reach the extremes more often, longer settings smooth more and signal later. No period removes the trade-off between responsiveness and false signals.

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