The Relative Strength Index (RSI) is a technical momentum indicator that compares the magnitude of a stock’s recent ‘up closes’ (where the price closed higher than it opened) to recent ‘down closes’ (where the price closed lower than it opened). The results are then indexed from 0 to 100. The number of days used in the formula is a matter of preference. The default value for stocks is 14.
The RSI can be used to determine ‘overbought’ and ‘oversold’ conditions. For instance, if a stock’s RSI falls below 30, it could be seen as oversold. But when it breaches an RSI of 70, it could be overbought.
The RSI can also be used to identify divergence. Divergence happens when a price makes a new high (or low) but the RSI does not reach new highs (or lows). It could be a bearish signal if the price reaches a new high while the RSI does not. Likewise, it could be a bullish signal if the price reaches a new low while the RSI does not.
All aspects of the RSI indicator, including colours, can be customised in the settings modal.