RSI (14)
Relative Strength Index
What is RSI (Relative Strength Index)?
RSI (Relative Strength Index) is a technical indicator that shows, as a number, how strong the upward price pressure is compared to the downward pressure on a stock. It was developed by J. Welles Wilder Jr. in 1978 and is the most well-known momentum oscillator.
In simple terms, RSI is like a thermometer for stocks. Just like a normal human body temperature is around 98.6°F (36.5°C), stocks also have a normal "temperature" range. If your temperature is too high, you have a fever (overbought), and if it's too low, you have hypothermia (oversold). In the same way, if RSI is too high, the stock is overheated, and if it's too low, the stock is overly cold.
RSI moves between 0 and 100. Generally, 70 or above is considered overbought, and 30 or below is considered oversold. The most commonly used time period is 14 days, written as RSI(14).
For example, if Apple's (AAPL) RSI is 75, it means upward pressure over the past 14 days was much stronger than downward pressure, suggesting a short-term pullback may come. On the other hand, if Tesla's (TSLA) RSI is 25, selling pressure has been too strong recently, so a bounce could be possible.
English Terms
RSI, Relative Strength Index, RSI(14), Momentum Oscillator
Korean Terms
Relative Strength Index, RSI, Overbought/Oversold Indicator, Momentum Oscillator
How to Calculate RSI
Step 1: Calculate RS (Relative Strength)
RS = Average gain over 14 days / Average loss over 14 days
Step 2: Convert RS into RSI
RSI = 100 - (100 / (1 + RS))
A concrete example: Suppose that of Nvidia's (NVDA) last 14 trading days, the stock went up on 9 days and down on 5 days.
Total gain on the 9 up days: +$18 -> Average gain = 18 / 14 = 1.286
Total loss on the 5 down days: -$7 -> Average loss = 7 / 14 = 0.500
RS = 1.286 / 0.500 = 2.572
RSI = 100 - (100 / (1 + 2.572)) = 100 - 28.0 = 72.0 -> Entering overbought territory
How to Read RSI
Reading RSI properly isn't just about looking at the number; you also need to consider the stock's characteristics and the overall market environment. Even at the same RSI 70, it can be a normal level in a strong uptrend, but a sign of overheating in a sideways market.
RSI 0–20: Extreme Oversold
This appears during panic selling or sharp drops on bad news. A bounce is likely, but you must always check the fundamentals. In 2022, Meta (META) dropped to an RSI near 15 and then bounced strongly the next year. Extreme oversold levels are very rare, so when they appear, it's worth starting a deep dive into the company.
RSI 20–30: Oversold Zone
Selling pressure has been excessive. Traders looking for a technical bounce may consider buying here. However, if the downtrend is strong, RSI can linger in the 20–30 zone for a while, so it's safer to wait until RSI crosses back above 30 before entering. For example, the moment Amazon (AMZN) bounced from RSI 28 to 32 could be a good entry point.
RSI 30–70: Neutral Zone
This is the normal trading range. Above 50 means upward momentum is winning; below 50 means downward momentum is winning. In particular, RSI breaking above 50 can be seen as an early signal of a trend change. In a downtrend, if RSI bounces back to the 40–50 range and then falls again, the downtrend is still in place.
RSI 70–80: Overbought Zone
Short-term pullback or sideways movement becomes more likely. In a strong bull market, RSI can stay in the 70–80 zone for a while, so you shouldn't sell just because of this. In 2024, Nvidia (NVDA) stayed in the 70–80 RSI zone for weeks on the AI theme while still climbing—a good example.
RSI 80–100: Extreme Overbought
This is a parabolic rally or overheating condition. A near-term pullback is very likely. During Nvidia's 2024 surge, brief pullbacks repeatedly happened when RSI was above 85. In this zone, avoid opening new long positions, and consider taking partial profits if you're already holding.
Divergence is one of the most powerful signals in RSI analysis.
Bullish Divergence: The price makes a new low, but RSI shows a higher low than before. This means downward momentum is weakening, so a bounce is likely. In late 2022, Amazon (AMZN) made new lows in price while RSI held higher than the previous low, and then bounced strongly in 2023.
Bearish Divergence: The price makes a new high, but RSI shows a lower high than before. This means upward momentum is weakening, so a pullback is likely. It's a warning that the price is hitting new highs but is running out of steam.
RSI Failure Swing is another important pattern.
Bullish Failure Swing: RSI drops below 30, then bounces back above 30 (Point A) -> falls again but doesn't break below 30 (Point B) -> if RSI then breaks above the Point A level, it's a buy signal. This pattern is a more direct buy signal than divergence, and it's the method that Wilder himself, the developer of RSI, recommended.
Bearish Failure Swing: RSI rises above 70, then drops below 70 (Point A) -> rises again but fails to break above 70 (Point B) -> if RSI then breaks below the Point A level, it's a sell signal.
Comparison with Similar Indicators
RSI vs MACD
RSI is an oscillator that judges overbought/oversold conditions, while MACD is stronger at spotting trend reversals. RSI is more useful in sideways markets, and MACD is more useful in trending markets. Using the two indicators together is complementary.
RSI vs Stochastic
Both are momentum oscillators, but Stochastic is more sensitive. Stochastic is better for short-term trading, and RSI is better for stable signals.
RSI vs Bollinger Bands
Bollinger Bands show the relative position of price, while RSI measures the direction of price movement. When a Bollinger Band upper/lower touch and RSI overbought/oversold happen at the same time, the signal is more reliable.
Practical Strategies
Strategy 1: RSI + MACD Combo
When RSI bounces from 30 or below at the same time a MACD golden cross appears, it's a strong buy signal. Example: Microsoft (MSFT) RSI 28 + MACD golden cross -> a high-confidence buy timing. Conversely, when RSI drops from 70 or above at the same time a MACD death cross appears, the sell signal is also highly reliable. Compared to a single indicator, when two indicators point in the same direction, the probability of success goes up significantly.
Strategy 2: RSI Divergence Trading
Price new low + RSI higher low = bullish divergence -> buy when RSI crosses back above 30. Amazon's (AMZN) strong bounce after a bullish divergence in 2023 is a textbook example. Even after spotting a divergence, don't rush in; be patient and wait for RSI to confirm the turning direction. Divergence can form but the price can still drop further.
Strategy 3: Oversold Bounce Strategy (Detailed Guide)
If you found a stock with RSI 30 or below: Step 1 – Check that there are no fatal problems with the fundamentals (risk of bankruptcy, accounting fraud, industry collapse, etc.). Step 2 – Wait until RSI crosses back above 30. Step 3 – Confirm that trading volume is rising and a bullish candle appears. Step 4 – Enter using split buys (e.g., 3 portions). Place your stop-loss 3–5% below the previous low. Set your profit target at 2–3x the stop-loss distance (Risk/Reward 1:2 to 1:3).
Strategy 4: RSI + Support/Resistance Combo
RSI hits oversold near a major support line -> a powerful buy opportunity. Example: Apple (AAPL) hits RSI 28 near the 200-day moving average -> a technically attractive buy point. The 200-day moving average, 52-week low, and major round numbers (e.g., $100, $150) can act as support. When RSI is oversold where multiple support lines overlap, confidence is even higher.
Strategy 5: Adjust RSI Levels Based on the Trend Direction
In a strong uptrend, adjust RSI thresholds to 40/80; in a strong downtrend, adjust them to 20/60. In an uptrend, a drop to RSI 40 is a buy opportunity, and in a downtrend, a rise to RSI 60 is a sell opportunity. This approach helps you avoid trading against the trend and instead trade with the trend. Use the arrangement of the 20-day, 50-day, and 200-day moving averages to judge the trend.
Strategy 6: RSI + Volume Confirmation
When RSI bounces from the oversold zone, a much-higher-than-average volume increase makes the bounce signal more reliable. On the other hand, if RSI bounces without volume, it's more likely to be just a technical bounce. For example, if Coca-Cola's (KO) RSI bounces from 28 to 35 with volume running more than 2x the usual, that's a positive sign that institutional buyers are stepping in.
Characteristics by Sector
Growth Stocks (Tech / AI / Biotech)
Growth stocks like Nvidia and Tesla often have RSI sitting between 70 and 85 for long stretches. Raise the overbought threshold to 80, and also raise the oversold threshold to 35–40.
Value Stocks (Financials / Energy / Utilities)
Value stocks like JPMorgan and ExxonMobil work well with the traditional RSI 30/70 levels. Because of their dividend-stock nature, bounces from oversold zones tend to be more reliable.
High-Volatility Sectors (Meme Stocks / Small Biotech)
RSI can jump from 20 to 80 in a single day. Don't rely on RSI alone; judge together with volume and news. Shortening the RSI period to 7–9 days can make it more useful.
Defensive Stocks (Consumer Staples / Healthcare)
Defensive stocks like Procter & Gamble and Johnson & Johnson have a narrow RSI range of about 35–65. Tightening the overbought/oversold thresholds to 65/35 is more effective.
Cautions
"RSI 30 or Below = Automatic Buy" is a Dangerous Misunderstanding
If a company has fundamental problems, RSI can fall to 10 or below and the price can still keep dropping. To avoid "catching a falling knife," always check the fundamentals as well.
The Trap in Strong Trending Markets
In a strong uptrend, RSI tends to move within 50–80, and RSI 50 effectively acts as the oversold line. First figure out the trend direction, then adjust your RSI thresholds accordingly.
False Signals
RSI can swing wildly around major events like earnings releases and FOMC rate decisions, so RSI signals are less reliable during these windows. Observe for 2–3 days or cross-check with other indicators.
Differences by Timeframe
Daily RSI and weekly RSI can give different signals. Use a timeframe that matches your investment horizon (short/mid/long term). Ideally, use weekly RSI to confirm the big picture and daily RSI to time specific entries—a multi-timeframe analysis is most effective.
RSI Doesn't Tell You "How Much" a Price Will Move
RSI being oversold doesn't tell you the size of the bounce. Bouncing from RSI 25 could mean a 5% rise or a 50%+ rise. RSI only raises the probability of a direction change; it doesn't guarantee returns. Always set your target price and stop-loss in advance.
Investment Checklist
Have you checked whether the RSI is in an extreme zone (30 or below, or 70 or above)?
Have you checked whether there's an RSI divergence (price and RSI moving in opposite directions)?
Are you adjusting RSI thresholds to fit the characteristics of the stock's sector?
Have you cross-checked with at least one other indicator (MACD, volume, etc.) in addition to RSI?
Have you confirmed there are no fatal risks in the company's fundamentals?
Have you done a multi-timeframe analysis to check whether weekly RSI and daily RSI point in the same direction?
Have you set a stop-loss level and a profit target before entering the trade?
Have you adjusted how you read RSI to fit the current market trend (up/down/sideways)?
Frequently Asked Questions
Q. Can I change the RSI period from 14 days to something else?
A. Yes, you can adjust it depending on your investment style. Short-term traders use RSI(7–9), and long-term investors use RSI(21–25). A shorter period gives more false signals, and a longer period gives signals that come later. Start with the standard 14 days.
Q. Can I time trades using RSI alone?
A. Not recommended. RSI is a "reference indicator," not a "decision indicator." You should combine it with other technical indicators like volume, moving averages, and MACD, plus fundamental analysis. Pro traders typically combine 3–4 indicators.
Q. How do I read RSI when it's near 50?
A. RSI 50 is the balance point between upward and downward momentum. It's not a clear buy/sell signal, so use trend direction indicators (moving averages, MACD) as a reference. In a downtrend, if RSI crosses above 50, it can be an early signal of a trend change.
Q. Why does the RSI value come out different for the same stock on different apps?
A. It's because of differences in the moving average method (SMA vs EMA), the data source (whether pre-market is included), and the default period setting (14 days vs 9 days). A small difference is normal, and it's best to stick with one platform consistently.
Q. Can I apply RSI to ETFs (SPY, QQQ)?
A. Yes, RSI can be applied to ETFs. RSI on SPY (S&P 500 ETF) or QQQ (Nasdaq 100 ETF) is useful for judging overbought/oversold of the overall market. However, ETFs are less volatile than individual stocks, so RSI rarely reaches extreme values (20 or below, 80 or above). For ETFs, applying 35/65 thresholds is more practical.
Q. Where can I check RSI for free?
A. On TradingView.com, you can check RSI charts for all US stocks with a free account. Finviz.com's screener lets you filter by RSI (e.g., search for stocks with RSI 30 or below). Korean broker MTS/HTS platforms also let you add RSI as an indicator on US stock charts, and you can also check RSI(14) values on USStockToday's stock detail pages.
RSI Real-World Success and Failure Case Studies
Success Case: Buying Meta (META) at RSI 15 in 2022
After Meta's October 2022 earnings, the stock crashed and RSI dropped near 15. It was an extreme oversold level, but Meta's core advertising business was still solid and monthly active users were still growing. If you checked the fundamentals and bought when RSI crossed back above 30, the stock roughly tripled over the following year. It's a textbook example of what happens when RSI oversold meets sound fundamentals.
Failure Case: The Luna (LUNA) RSI Oversold Trap in 2022
During the 2022 Luna/Terra collapse, many investors who expected an "oversold bounce" bought in when RSI fell to 10 or below. But because the fundamentals themselves had collapsed (a flaw in the stablecoin mechanism), RSI was meaningless and the price fell to nearly zero. Never blindly follow an RSI oversold signal—you must always check whether the company's underlying value is still intact.
Notes for Korean Investors
US Market Hours and RSI: The US regular session runs from 11:30 PM to 6:00 AM Korean time. Since RSI is calculated based on the regular-session close, the RSI you check in the Korean morning is the most up-to-date value.
Pre-/After-Hours Impact: If a stock moves more than 10% in extended-hours trading after an earnings release, RSI can jump sharply when the next regular session opens. RSI signals can be distorted during earnings season, so check the earnings calendar.
Using Korean Brokers: Most Korean brokers—Kiwoom, Mirae Asset, Samsung Securities, etc.—offer US stock RSI charts by default on their MTS/HTS apps. Setting up alerts for RSI 30/70 crossovers is a good idea.
Exchange Rates and RSI: RSI is calculated using dollar-based prices, so exchange rate movements don't affect RSI itself. However, if you buy in the RSI oversold zone while the KRW/USD rate is at a high level, a drop in the exchange rate can add extra losses on top of your investment.