RSI (Relative Strength Index)

In one line: RSI is a speed meter for price — it shows if a move is strong, tired, or quietly losing steam.

🎯 What you'll learn

What RSI (Relative Strength Index, a momentum meter from 0 to 100) means.
What "overbought" and "oversold" really tell you — and what they do NOT.
How the 50 line shows the market's mood.
How to spot "divergence" — an early warning that a move may be ending.

📘 Key concepts

What RSI is

A quick idea of what the number means.

RSI moves on a scale from 0 to 100.
It measures momentum (the speed and strength of a price move).
The common setting is 14 periods (the last 14 candles — days on a daily chart). This is the default; you rarely need to change it.
Think of it like the rev counter in a car — it shows how hard the engine is working, not where you are going.

Overbought and oversold

The two famous zones — read them with care.

Above 70 = "overbought" (the up-move may be stretched, like a rubber band pulled far).
Below 30 = "oversold" (the down-move may be stretched).
CRUCIAL: these are NOT automatic sell or buy buttons.
In a strong trend (price moving one way for a long time), RSI can stay above 70 for weeks. Selling just because it hit 70 can make you exit a good move too early.
Treat 70 and 30 as "pay attention" signs, not "act now" signs.

The 50 line — the mood line

A simple way to read the overall bias.

RSI above 50 = buyers are a bit stronger (bullish bias, meaning leaning up).
RSI below 50 = sellers are a bit stronger (bearish bias, meaning leaning down).
Use 50 like the halfway line in a cricket match — it tells you which side has the upper hand right now.

Divergence — the early warning

This is RSI's most useful trick. Take it slowly.

Divergence = when price and RSI disagree.
Bearish divergence: price makes a higher high (a new peak), but RSI makes a lower high (a smaller peak). Meaning: price went up, but the strength behind it fell. The engine is weakening even though the car crept forward. This warns of a possible reversal (a turn downward).
Bullish divergence: price makes a lower low (a new bottom), but RSI makes a higher low. The selling is losing power — a possible turn upward.
Divergence is a warning, not a guarantee. Wait for the price to confirm.

🔍 Example

A stock rises over two weeks.

First peak: price hits ₹100. RSI reads 75.
Second peak: price pushes higher to ₹110 (a new high). But RSI only reaches 68 (a lower high).

Price went up. Momentum went down. That gap is bearish divergence.

Price:   /\        /\   <- higher high (₹110)
        /  \      /
       /    \____/
RSI:    /\
       /  \    /\        <- lower high (75 -> 68)
      /    \__/  \

Reading: buyers are running out of energy.
Smart move: do not rush to short (bet on a fall). Wait for price itself to break down — maybe close below a recent support level — before acting.

⚠️ Common mistakes

Selling the instant RSI hits 70 (or buying at 30). In a trend it can stay there a long time.
Using RSI alone. It should confirm what price is already showing, not replace it.
Trading every divergence. Many fade away. Always wait for price to agree.
Changing the 14 setting to chase perfect signals. Keep it simple as a beginner.
Ignoring the trend. RSI signals work best with the bigger trend, not against it.

✅ Key takeaways

RSI (0–100) measures momentum — the strength behind a move.
Above 70 = overbought, below 30 = oversold — a caution, not an auto trade.
The 50 line shows bias: above = leaning up, below = leaning down.
Divergence (price and RSI disagree) is an early warning of a possible turn.
Use RSI to confirm price action — never trade on RSI by itself.

📝 Quick check

Q: RSI is at 78. Is that an automatic "sell now"? A: No. It means overbought (the move may be stretched). In a strong trend it can stay high. Wait for price to confirm before acting.
Q: Price makes a higher high but RSI makes a lower high. What is this called and what does it warn? A: Bearish divergence. It warns that momentum is weakening and a downward reversal may be near.
Q: What does RSI crossing above 50 suggest? A: A bullish bias — buyers are a little stronger than sellers right now.

📖 New words

RSI (Relative Strength Index) — a momentum meter that runs from 0 to 100.
Momentum — the speed and strength of a price move.
Period (14) — how many recent candles RSI looks at; 14 is the default.
Overbought — RSI above 70; the up-move may be stretched.
Oversold — RSI below 30; the down-move may be stretched.
Bullish — leaning up; buyers stronger.
Bearish — leaning down; sellers stronger.
Divergence — when price and RSI move in disagreement.
Higher high / lower high — a new peak that is above / below the last peak.
Reversal — when price turns and starts moving the other way.
Support — a price level where buyers have stepped in before.
Short — a trade that profits if the price falls.

Educational content only — not financial advice. Trading involves the risk of losing money.