What is RSI?

J. Welles Wilder developed the relative strength index (RSI) in 1978, and it has since grown in popularity, first among stock traders and more recently among cryptocurrency traders.

Three lines make up the indicator, with the middle line serving as the actual RSI indicator (yellow in the image). Traders can determine whether an asset is overbought or oversold using the RSI. The average of absolute upward or downward price changes over the 14 most recent periods is used to calculate the RSI, which ranges from 0 to 100.

An asset is regarded as being oversold when the RSI reading is below 30, while being overbought is indicated by a reading above 70. According to the RSI, if an asset is trading in the upper third of its price range, it is oversold. Overall, RSI is a fairly accurate indicator because it gauges how strong up and down movements are. One only needs to be aware of key levels. Nevertheless, there is no assurance that assets will in fact rebound once the RSI reaches 30 or 70. RSI signals typically have more strength when the market trades in a range with minimal up- or down-movements.