RSI

RSI, short for relative strength index, is a momentum oscillator that measures the speed and size of a stock's recent price changes on a scale from 0 to 100, used to judge whether it has become overbought or oversold. It is one of the most widely used technical indicators, popular precisely because it condenses a stock's recent price behavior into a single, easy-to-read number.

RSI is calculated by comparing the average size of a stock's up moves to the average size of its down moves over a set lookback period, most commonly 14 sessions. A reading above 70 is generally considered overbought, suggesting the stock has risen quickly enough that a pause or pullback may follow, while a reading below 30 is generally considered oversold, suggesting a decline may have been overdone. Readings near 50 suggest more balanced, directionless momentum.

Beyond simple overbought and oversold readings, traders also watch for divergence between RSI and price, where a stock makes a new high or low but RSI fails to confirm it, which can flag weakening momentum ahead of a possible reversal. It is worth noting that a strongly trending stock can stay overbought or oversold for an extended period, since RSI measures the pace of a move rather than whether the move is justified, so it is typically used alongside trend analysis and other tools rather than as a standalone signal to buy or sell.