RSI

The Relative Strength Index (RSI) is a momentum oscillator developed by J. Welles Wilder in 1978. It measures the magnitude of recent price changes on a scale of 0 to 100, helping traders identify whether a stock is overbought (RSI above 70) or oversold (RSI below 30). The standard calculation uses a 14-period lookback window.

RSI is calculated by comparing average gains to average losses over the lookback period. When a stock has been rising consistently, average gains exceed average losses, pushing RSI toward 100. When it has been falling, the opposite occurs. The formula normalises this comparison to always produce a value between 0 and 100, making it comparable across different stocks and price levels.

On Indian stock charts, RSI is one of the most widely used indicators. Traders look for several signals: overbought/oversold readings (RSI above 70 suggests the stock may be due for a pullback; below 30 suggests a potential bounce), divergence (price makes a new high but RSI does not, warning of weakening momentum), and centreline crossovers (RSI crossing above 50 confirms bullish momentum).

The standard 70/30 thresholds work well in range-bound markets but can produce premature signals in strong trends. During a powerful rally in stocks like Reliance or HDFC Bank, RSI can stay above 70 for weeks. Experienced traders adjust the thresholds — using 80/20 in trending markets — or focus on RSI divergence rather than absolute levels.

RSI works best when combined with other indicators and price action analysis. A stock at Support with RSI below 30 and bullish candlestick patterns provides a higher-probability setup than any single signal alone. Many Indian traders pair RSI with Moving Average crossovers and Trading Volume analysis for confirmation before entering trades.