RSI
The Relative Strength Index, or RSI, is one of the most widely used momentum oscillators in technical analysis. Created by J. Welles Wilder, RSI measures the speed and magnitude of price changes on a scale of 0 to 100. Indian traders rely on RSI to spot overbought and oversold conditions, confirm trends and identify divergences.
Key takeaways:
- RSI ranges from 0 to 100 — above 70 is often called overbought, below 30 oversold.
- Default period is 14; can be adjusted for different time frames.
- RSI divergence with price is one of the most actionable reversal signals.
- In strong trends, RSI can stay overbought or oversold for extended periods.
- Combine RSI with trend filters and price-action for higher accuracy.
How RSI is calculated
RSI = 100 − [100 ÷ (1 + RS)], where RS is the ratio of average gains to average losses over N periods (default 14). Wilder’s original formula uses an exponential smoothing — most modern platforms implement this version automatically.
Standard signals
- Overbought (above 70): Suggests potential for a pullback in range-bound markets.
- Oversold (below 30): Suggests potential for a bounce in range-bound markets.
- Mid-line crosses: RSI above 50 indicates bullish momentum; below 50 bearish.
- Divergence: RSI failing to confirm new price highs or lows often signals trend exhaustion.
RSI in strong trends
One of the most common mistakes is selling every RSI move above 70 in a roaring bull run. In strong trends, RSI can stay above 70 for weeks (or below 30 in bear markets). Andrew Cardwell’s classic refinement suggests treating 40–80 as the bullish range and 20–60 as the bearish range, instead of the textbook 30/70 levels.
Divergence — the most powerful RSI signal
- Bearish divergence: Price makes higher high but RSI makes lower high — possible top.
- Bullish divergence: Price makes lower low but RSI makes higher low — possible bottom.
- Hidden divergence: Used to confirm continuation rather than reversal.
Tuning RSI for time frames
| Use case | Suggested period |
|---|---|
| Intraday scalping | 5–9 |
| Intraday swing | 9–14 |
| Daily (default) | 14 |
| Weekly positional | 21 |
Using RSI with Indian indices
RSI on weekly charts of Nifty and Bank Nifty gives a great sense of cyclical momentum. RSI above 70 on a weekly Nifty chart signals an extended bull run that may need to consolidate; below 30 signals deep oversold territory that has historically been a multi-month buying zone. Combine with monthly trend filters for high-conviction allocation decisions.
Frequently asked questions
What is the best RSI setting for Indian stocks?
The default 14 works well across daily charts. Intraday traders shorten it; positional investors stretch it.
How is RSI different from Stochastic?
RSI measures speed of change; Stochastic measures where the close sits within a recent range. RSI is smoother; Stochastic reacts faster.
Can I trade RSI alone?
Most successful traders use RSI with trend filters (moving averages, ADX) and price-action confirmation.
Does RSI work on options?
On premia, only loosely — time decay distorts the indicator. Prefer applying RSI to the underlying.
