What Is RSI? (Relative Strength Index) Explained

RSI (Relative Strength Index) is a momentum indicator that measures how fast and how much a stock has moved. It runs from 0 to 100 and helps investors identify whether a stock is oversold (falling too fast) or overbought (rising too fast).

How to Read RSI

• RSI below 30 — Oversold: The stock has fallen hard and fast. May be due for a bounce, or could keep falling if there's a fundamental reason for the decline.
• RSI 30–70 — Neutral: Normal momentum range. No extreme signal either way.
• RSI above 70 — Overbought: The stock has risen sharply and quickly. May pull back, but strong trends can stay overbought for a long time.

How RSI Is Calculated

RSI = 100 − (100 ÷ (1 + RS)), where RS = average gain over 14 days ÷ average loss over 14 days. RSI was developed by J. Welles Wilder Jr. in 1978 and remains one of the most widely used technical indicators in stock analysis.

How Investors Use RSI

RSI is most useful as a filter, not a buy or sell trigger on its own. Common approaches: combine a low RSI with strong fundamentals (P/E, earnings growth) to find beaten-down quality stocks, or use RSI to time entries into stocks you already want to own.

RSI Limitations

RSI is a momentum indicator — it tells you how fast a stock has moved, not why. A stock can have a low RSI and keep falling if the business is deteriorating. Always combine RSI with fundamental analysis.

See RSI in Action

StocksRankings shows the RSI for every S&P 500 and Nasdaq 100 stock. See which stocks insiders are buying with low RSI readings, or check today's AI picks which factor in RSI as one of many signals.

Read next: What Does Oversold Mean in Stocks? · What is P/E Ratio?

How to Trade Oversold RSI Stocks

First investigate why the stock fell. An RSI below 30 after an index-wide correction is different from the same reading after a company cuts its earnings guidance. The indicator measures past price momentum, not the reason for the decline. Read the latest earnings release and check whether sales, margins, cash flow and debt changed before treating a low reading as a potential opportunity.

Decide what would invalidate your idea before trading. A trader might wait for a stock to stop making new lows and exit if it breaks that low. A long-term investor might buy in stages and accept more volatility. Neither approach guarantees a rebound. A stock can stay below 30 through a prolonged downtrend, and an overbought stock can keep rising for weeks.

What Is a Good RSI?

That depends on your purpose. Under 30 flags unusual selling; 50 indicates recent gains and losses are balanced; above 70 flags strong upward momentum. These are conventions, not buy and sell commands. A 14-period reading calculated from daily prices describes a different interval from a weekly or hourly RSI. Compare stocks using consistent periods and chart intervals.

RSI Divergence and Confirmation

Some investors watch for price making a lower low while RSI makes a higher low, suggesting selling momentum is fading. Divergence can fail, particularly around earnings announcements. Check sector performance, earnings estimates and valuation instead of stacking several price-based oscillators and calling them independent confirmation.

How RSI Smoothing Works

The formula uses average gains and average losses, but the standard Wilder calculation does not discard every observation older than 14 sessions at once. After the initial 14-period averages, each new average weights the previous average by 13, adds the latest gain or loss and divides by 14. The resulting reading is smoothed. A chart provider can show a slightly different number if it seeds the calculation at a different date, rounds intermediate figures or handles adjusted prices differently. A reading of 29.9 instead of 30.1 is not evidence that one provider has discovered a fundamentally different opportunity.

Consider two stocks that both fell from $100 to $85 and show RSI near 25. One declined during a general market selloff without a change in its outlook; the other lost a major customer and withdrew guidance. RSI can describe the speed and direction of both moves, but cannot distinguish their business prospects. Investors should open the latest results and ask whether the losses are temporary, whether earnings expectations have changed and whether the company can fund operations without raising new capital. An extreme reading is a prompt to investigate the story behind the chart.

Timeframe and Market Regime

A daily 14-period RSI describes roughly three weeks of trading. A weekly RSI uses 14 weeks, and an hourly reading uses 14 hours. A stock can be oversold on the daily interval and still be in an established uptrend on the weekly chart. Specify the interval before comparing readings. Shorter lookbacks respond faster and generate more noise, while longer lookbacks move more slowly. Changing the settings after seeing a price move can make almost any chart look persuasive in hindsight.

The familiar thresholds of 30 and 70 are conventions, not physical limits. Strong uptrends can keep RSI above 50 and repeatedly cross 70 without an immediate reversal. In a prolonged bear market, rallies may stall well before 70. Compare the current reading with the stock's recent range. Overbought describes the pace of recent gains, not an instruction to sell; oversold describes recent losses, not a promise that buyers will return tomorrow.

Turning an Oversold Screen Into a Decision

Look first for the cause of the decline. Were results below expectations, or was selling broad across an industry? Next, decide what evidence would prove your thesis wrong. A trader may wait for the stock to stop making new lows and set an exit if it breaks below a recent low; an investor with a longer horizon may buy in stages. Both approaches carry risk, and a 10% rebound after a 40% fall still leaves a substantial loss from the former price. Use position sizes you can tolerate if the signal fails.

Some traders seek bullish divergence, where price makes a new low while RSI makes a higher low. That may show selling momentum slowing, but divergence can persist without a reversal, especially around earnings news. Combine momentum with information from a different source, such as balance-sheet strength or valuation. Stacking multiple indicators derived from the same price history may look like confirmation without adding independent evidence. An indicator should help frame a question, not substitute for answering it.

Before considering a purchase, write down what news drove the move, whether management changed its outlook, how the stock compares with its sector and what would invalidate your case. If those answers are unknown, passing on the trade is reasonable. Past price movements cannot predict future earnings announcements, and no fixed RSI threshold eliminates the possibility of further losses. See the oversold guide for the broader concept and P/E guide for a different lens on valuation.

Reading the Current Ranking Responsibly

The embedded list below is a snapshot of the same source used by the full ranking. It is sorted from the lowest available reading and shows only five names to keep the guide readable. The list can change as prices move, companies report earnings, or source data is refreshed. A missing company does not mean its metric is unfavorable: it may be outside the ranking universe or may lack enough usable data to calculate a comparable figure. Likewise, a company at the top is not necessarily the best investment. Rankings measure one attribute, not the whole business.

Use the timestamp to distinguish the age of the underlying dataset from the time you opened this page. A page you visit today can contain source data that was last updated earlier. Do not interpret an older PEG forecast, P/E based on past results or an RSI reading from a completed session as a guaranteed live market quote. Before acting, verify the metric against the latest price and filings, and check for earnings announcements or corporate actions since the last update. Numbers in this guide are educational examples unless explicitly labeled as current ranking data.

StocksRankings links each ticker to its individual stock page so you can investigate more than a single ratio. Review the company's results, its competitors and the risks behind the apparent bargain or signal. Consider how much the result would change if earnings, estimates or market conditions differed from your initial assumptions. No metric in isolation can establish fair value, predict a price reversal or replace a plan for handling losses. The full ranking offers more candidates; it does not remove the need to assess each one on its own merits.