Relative Strength Index Calculator

Understanding Relative Strength Index (RSI)

The Relative Strength Index (RSI) is a popular technical momentum indicator introduced by J. Welles Wilder Jr. in 1978. It measures the velocity and magnitude of directional price movements to help traders evaluate overbought or oversold conditions in financial markets.

RSI Formula and Calculation Method

RSI is calculated using a two-step mathematical process based on average price gains and losses over a specified lookback period (typically 14 periods):

$$\text{RSI} = 100 - \left( \frac{100}{1 + \text{RS}} \right)$$

Where Relative Strength ($\text{RS}$) is calculated as:

$$\text{RS} = \frac{\text{Average Gain}}{\text{Average Loss}}$$

Wilder used a smoothed exponential moving average for subsequent periods:

$$\text{AvgGain}_t = \frac{\text{AvgGain}_{t-1} \cdot (N - 1) + \text{Gain}_t}{N}$$

Interpreting RSI Signals

• Overbought Level (RSI ≥ 70): Indicates strong bullish momentum, but warns that the asset may be overextended and due for a price consolidation or pullback.
• Oversold Level (RSI ≤ 30): Indicates strong bearish momentum, suggesting the asset may be undervalued and prime for a bullish reversal.
• Centerline Crossover (RSI = 50): RSI rising above 50 confirms bullish trend continuation, while dropping below 50 indicates bearish trend continuation.