What is RSI? Relative Strength Index, explained

How RSI is calculated

The Relative Strength Index sums the magnitude of up-moves and down-moves over a fixed lookback window — almost always 14 periods — and expresses the ratio as a bounded number between 0 and 100. The canonical formula is RSI = 100 − 100 / (1 + RS), where RS is the average gain divided by the average loss over the window.

In practice you do not compute it by hand. The chart library does. What matters for the reader is the interpretive shape: an RSI rising into the 70s says recent up-moves have dominated; an RSI falling into the 30s says down-moves have dominated. The further from 50 the reading, the more lopsided recent price action has been.

Overbought and oversold are not signals on their own

The common misconception is that RSI > 70 means "sell" and RSI < 30 means "buy". This is wrong. A strong trend can park RSI in overbought territory for weeks while the asset continues higher. A capitulation can leave RSI in oversold territory while sellers keep selling. RSI is best read as a context layer alongside trend direction.

The more reliable use is divergence. If price prints a higher high but RSI prints a lower high, momentum is weakening even though price is still rising — a classic warning. The mirror case (lower low in price, higher low in RSI) is a positive divergence and often precedes a reversal.

How Signodex uses RSI

Signodex computes RSI(14) on every supported timeframe and surfaces it as one of the inputs to the AI Signal Analyst (see /how-ai-works). The AI is required to characterise the reading using hedge language only — "RSI shows momentum cooling near overbought territory" — and never to instruct you to buy or sell. RSI alone is not a trade signal in this app; it is one of several indicators (MACD, Bollinger Bands, VWAP, OBV) the AI weighs together.