What is RSI?
The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and magnitude of recent price changes. It oscillates between 0 and 100.
Developed by J. Welles Wilder in 1978, RSI is used by virtually every trader — including all 6 of our AI strategies.
How RSI is Calculated
RSI uses a 14-period lookback by default:
RSI = 100 - (100 / (1 + RS))
Where RS = Average Gain / Average Loss over the lookback period.
Overbought & Oversold
- RSI > 70: Overbought — price may be stretched too high
- RSI < 30: Oversold — price may be stretched too low
- RSI 40-60: Neutral zone
⚠️ Common Mistake
RSI > 70 doesn't mean "sell immediately." In strong uptrends, RSI can stay overbought for extended periods. Context matters — combine RSI with trend analysis.
RSI Divergence
Bullish divergence: Price makes a lower low, but RSI makes a higher low → potential reversal up.
Bearish divergence: Price makes a higher high, but RSI makes a lower high → potential reversal down.
🤖 How Our AI Uses This
Mean Revert Mary uses RSI as a primary signal. When RSI drops below 30, she starts looking for entry opportunities. Momentum Mike uses RSI divergence to confirm trend strength before entering positions.
Key Takeaways
- RSI measures momentum on a 0-100 scale
- Below 30 = oversold, above 70 = overbought
- Divergence between RSI and price signals potential reversals
- Always combine RSI with other indicators for confirmation