RSI measures how far recent moves went — not where price goes next.
- 70 is a name, not a sell signal
- Strong trends stay “overbought” for weeks
- Change the window and the signal changes with it
What this is about
RSI — the Relative Strength Index — compresses recent price movement into a single number between 0 and 100. It is probably the most misused indicator in common circulation, and the misuse comes from one specific misreading that this lesson exists to remove.
How it is built
Over a window, conventionally 14 periods, RSI compares the size of gains to the size of losses:
- Average the size of the up moves in the window.
- Average the size of the down moves.
- Express the first as a proportion of the total.
Result: 100 means every move in the window was up. 0 means every move was down. 50 means gains and losses have been roughly equal in size.
Notice what is being measured — the balance and size of recent moves. Not value, not quality, not whether anything is cheap.
Reading it honestly
The conventional lines are 70 and 30, usually labelled overbought and oversold.
Those two words are the problem. They sound like verdicts about price being too high or too low. They are not. RSI has no access to what a company is worth. Above 70 means one thing only: recent up moves have strongly outweighed recent down moves.
A more honest reading:
- Above 70 — this has risen hard and fast lately.
- Below 30 — this has fallen hard and fast lately.
- Near 50 — recent up and down moves have been similar in size.
Now the crucial consequence: a share in a strong trend can sit above 70 for weeks and keep rising. That is not the indicator failing. It is the indicator correctly reporting sustained one-sided movement. Selling every time RSI crosses 70 means selling into strength, repeatedly, and the mistake is not in the formula — it is in reading "overbought" as "about to fall".
Where it is more useful
As a filter rather than a trigger. Not "RSI is 72, sell", but "this has run hard recently, so if I am buying now I am paying up — is that a decision I want to make?"
Divergence, with caution. Price makes a new high, RSI makes a lower high — meaning the latest push was weaker than the previous one. This is a genuine observation about momentum fading. It is also the single most over-claimed setup in technical analysis: divergences appear frequently and resolve in every possible direction, and they are far easier to identify after the fact. Treat it as "this leg was weaker", not as a signal.
Comparing a share to itself over time. RSI at 75 on a share that rarely exceeds 65 says more than RSI at 75 on one that lives above 70 for months. Context beats thresholds.
The window length
The default is 14 periods. Shorter windows (7, 9) reach the extremes far more often and produce many more crossings; longer ones (21, 28) rarely get there at all.
This means the 70 and 30 lines are not fixed features of the market — they are a consequence of a setting. Changing the window changes how often you see a "signal", without changing anything about the share.
What this does not tell you
It does not tell you direction. RSI answers "how one-sided has recent movement been", not "which way next". These are different questions and RSI answers only the first.
It does not tell you a share is expensive or cheap. It has never seen the revenue, the profit or the price. Overbought is a name, not a valuation.
It does not work the same in a trend as in a range. In a sideways market the 70/30 crossings look useful. In a strong trend the same crossings are a machine for exiting early. The indicator does not know which regime it is in — and neither the app nor anybody else can tell you reliably in advance.
It does not become more reliable with more confirmation. Adding indicators until several agree mostly adds correlated versions of the same information — they are all functions of the same recent prices.
Where to see this in the app
Chart → RSI draws it in its own panel beneath the price, with the 70 and 30 lines marked. Beneath rather than over the price, deliberately: it is a different unit and overlaying it would invite reading the two as one line.
The exercise worth doing once: find a share that has trended strongly for a few months and look at how long RSI stayed above 70 while price kept rising. That single observation is worth more than any rule about the number.
Chart → Technicals includes RSI in its summary reading alongside MACD and the moving averages — again, a reading rather than a recommendation.
Alerts can watch a price level for you. It cannot yet alert on an RSI value, which is worth saying plainly rather than leaving you to hunt for the setting.