The (Relative Strength Index) compares smoothed gains with smoothed losses – mainly over the last roughly 14 candles – and converts the ratio to a scale from 0 to 100. Above 70 a symbol counts as , below 30 as oversold. That only describes the most recent move – on its own it is no reason to buy or sell.
The 50 line
At 50, gains and losses were equally large on average. A rule of thumb, not a fixed limit: in an uptrend the RSI often swings between 40 and 80, in a downtrend more between 20 and 60. Many read the side of the 50 line as a hint at the direction of the last few weeks.
RSI in strong trends
In a strong rise the RSI can stay above 70 for a long time. Anyone who reads every “overbought” as the end exits too early or bets against the trend. In the model “Strong uptrend” the RSI stayed above 70 for up to 29 candles in a row and hardly fell below 50 in the pullbacks.
The period
With a shorter period the RSI swings more and reaches 70 and 30 more often; with a longer one it gets calmer. 14 is the standard from J. Welles Wilder’s original description. The next lesson shows how the number is calculated.