A momentum oscillator that measures the speed and magnitude of recent price changes on a scale of 0 to 100, used to identify overbought or oversold conditions.
Developed by J. Welles Wilder, the RSI compares average gains to average losses over a look-back period (typically 14 sessions). Readings above 70 are conventionally considered overbought - a potential reversal warning - while readings below 30 signal oversold conditions.
RSI is most useful as a divergence indicator: when price makes a new high but RSI fails to confirm, bearish divergence signals weakening momentum. The opposite - bullish divergence - can precede recoveries. RSI should not be used in isolation; trend context and support/resistance levels strengthen its signals.
In trending markets, RSI can stay overbought or oversold for extended periods, so traders often adjust thresholds (e.g. 80/20 in strong trends) or combine RSI with moving averages to avoid counter-trend entries.
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