Relative Strength Index

The Relative Strength Index (RSI) is a momentum oscillator developed by J. Welles Wilder Jr. that measures the speed and magnitude of recent price movements to identify overbought or oversold conditions. RSI values range from 0 to 100 and are typically calculated over a 14-period window. A reading above 70 suggests that a security may be overbought and due for a pullback, while a reading below 30 indicates it may be oversold and poised for a rebound. Readings above 75 or below 25 carry even greater weight - values above 75 are strongly correlated with an impending retracement, while values below 25 often precede a sharp recovery. Traders frequently use RSI to anticipate trend shifts and commonly pair with other indicators to confirm entry and exit points. Below are two recent examples: the first illustrates an RSI peak followed by a price decline, while the second highlights an RSI trough that preceded a bullish reversal - both selected to demonstrate how to interpret RSI behavior in context.

Key Concepts:

  • RSI between 40–60 signals consolidation: This neutral zone often precedes breakouts or breakdowns.
  • RSI crossing above 50 confirms bullish momentum: Especially powerful when paired with a rising EMA or MACD crossover.
  • Overbought doesn’t mean reversal: RSI above 70 can signal strong momentum—wait for a bearish divergence or breakdown before fading.
  • Growth and momentum stocks often carry higher RSIs: These names tend to trend strongly, so RSI readings above 70 may persist without signaling immediate reversals.
  • Bullish divergence flags potential bottoms: When RSI rises while price makes new lows, it often precedes a reversal.
  • Pair with trend indicators: Use RSI with moving averages to avoid countertrend trades and improve timing.
Next Lesson: Bollinger Bands

AImy Simplifies RSI Analysis

AImy enhances RSI analysis by automatically detecting overbought and oversold conditions, trend reversals, and divergence signals across a broad spectrum of stocks. It pinpoints momentum shifts with precision, flagging potential entry and exit zones based on real-time RSI behavior, price action, and complementary indicators. Each signal is contextualized with historical RSI patterns and annotated for clarity, enabling users to quickly gauge trend strength and exhaustion. By removing the need for manual chart inspection and filtering out misleading fluctuations, AImy equips traders to act decisively and with greater confidence. Whether you're validating trend continuation, spotting early reversals, or scanning for high-probability setups, AImy transforms RSI interpretation into clear, actionable insights.