RSI (Relative Strength Index)
An overheated/cooled-off indicator expressed on a 0–100 scale, comparing the strength of recent up days and down days in the share price.
RSI = 100 − (100 ÷ (1 + RS))
Generally, 70 or above is viewed as the overbought (short-term overheated) zone, and 30 or below as the oversold (short-term cooled-off) zone.
In plain terms
If there have been many up days recently with large gains, RSI comes out high (close to 100); if there have been many down days, it comes out low (close to 0).
A single number between 0 and 100 shows "how heated up (or cooled down) this stock has been lately." It's usually calculated from the last 14 days of movement.
What it tells you
It shows whether the share price has moved so much in one direction over a short period that it has become lopsided. It's a kind of "heat thermometer": when price moves excessively one way, there's seen to be a chance of a pause or a pullback.
Because it condenses purely price movement rather than earnings or financials, it's used as a reference indicator for gauging short-term trends.
Formula
RSI = 100 − (100 ÷ (1 + RS)) RS = average gain ÷ average loss over a set period (usually 14 days)
What high or low means
Generally, 70 or above is viewed as the overbought (short-term overheated) zone, and 30 or below as the oversold (short-term cooled-off) zone.
That said, in strong uptrends or downtrends RSI can stay above 70 or below 30 for a long time, so it's hard to conclude a direction from that one number alone.
RSI only looks at price movement — it says nothing about a company's value (earnings, financials). A low RSI doesn't mean "priced below its value," it just means "it has fallen a lot recently." Value is what financial metrics like PER and ROE speak to.
When a strong trend continues, overbought or oversold readings can persist for a long time and work in reverse (turning your back early with an "overbought" reading while the price keeps rising).
RSI itself is not a buy or sell signal — it describes the state that "the price has leaned to one side right now." It is a short-term indicator, so it works on a different time frame from long-term investment thinking.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see RSI alongside the sector benchmark.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.