What Is RSI Indicator?

How RSI works

RSI measures the speed and size of recent price moves and turns that into a value between 0 and 100.

When recent upward moves have been stronger than downward moves, RSI rises. When recent downward moves have been stronger, RSI falls.

What overbought and oversold mean

Traders often use these basic RSI levels:

• Above 70: often called overbought
• Below 30: often called oversold
• Around 50: usually treated as neutral

Important: overbought does not automatically mean a stock must fall, and oversold does not automatically mean it must rise. Strong trends can stay stretched for longer than beginners expect.

Why beginners like RSI

RSI is beginner-friendly because it is easy to read. You do not need to master complex chart theory to understand that high RSI often means strong momentum and low RSI often means weak momentum.

It is especially useful for asking:

• Is this move getting stretched?
• Is momentum improving or weakening?
• Should I be more cautious here?

Best way to use RSI

RSI works best when combined with price structure, trend, and support or resistance.

A simple beginner approach is:

• Check the trend first
• Use RSI to judge whether price looks stretched
• Use other clues like moving averages or support levels for confirmation

What RSI divergence means

RSI divergence happens when price and RSI stop agreeing.

For example, if price makes a new high but RSI does not, that can suggest momentum is fading. If price makes a new low but RSI does not, that can suggest selling pressure is weakening.

Divergence is useful, but it should be treated as a warning sign, not a guaranteed reversal signal.

Common RSI mistake

The most common beginner mistake is assuming RSI alone is enough to buy or sell. It is better to think of RSI as a tool for context, not a complete trading system.