RSI Indicator: How the Relative Strength Index Works
The RSI, or Relative Strength Index, is a momentum oscillator that compares the size of recent gains with recent losses on a scale of 0 to 100. Its default length is 14 periods. Readings above 70 are read as overbought and below 30 as oversold, but in a strong trend RSI can stay there for a long time.
What the RSI Measures
The Relative Strength Index compares the size of recent up moves with the size of recent down moves. If the average gain over the last 14 candles is bigger than the average loss, RSI sits above 50. If losses have been bigger, it sits below 50. The more one side dominates, the closer RSI gets to 100 or to 0.
J. Welles Wilder Jr. created it and published it in 1978 in his book New Concepts in Technical Trading Systems. TradingView's built-in version uses his settings: a default length of 14 bars, with 70 treated as overbought and 30 as oversold (TradingView). Some traders use 80 and 20 to get fewer, stronger readings.
Because RSI is built from closing prices that already happened, it reacts to the market. It measures the push behind a move. It belongs to the momentum family in our TradingView indicators guide, alongside volume tools like the VWAP.
- Created by
- J. Welles Wilder Jr.Published 1978
- Default length
- 14 periods
- Scale
- 0 to 100
- Overbought / Oversold
- 70 / 30Some use 80 / 20
The RSI Formula, Step by Step
RSI takes three steps. First, split each candle's change into a gain or a loss. Second, average the gains and the losses over the length, 14 by default. Third, turn the ratio between them into a number from 0 to 100.
RSI = 100 - 100 / (1 + RS)
Wilder smoothing: new average = (previous average x 13 + current value) / 14
The smoothing means one big candle fades out of the average slowly instead of dropping off a cliff 14 candles later. That is why RSI moves more calmly than price.
Worked Example
Three readings, so you can see what the levels actually mean.
| Average Gain | Average Loss | RS | RSI |
|---|---|---|---|
| $600 | $400 | 1.5 | 60 |
| $700 | $300 | 2.33 | 70 |
| $300 | $700 | 0.43 | 30 |
So an RSI of 70 means the average up candle has been about 2.33 times the size of the average down candle. An RSI of 30 is the mirror image. Neither one says the move is over.
How to Read the RSI
Overbought and Oversold
Above 70, buyers have been in control for a while. Below 30, sellers have. In a range, those readings often line up with the top and bottom of the range. In a strong trend, RSI can stay above 70, or below 30, for a long stretch, so a high reading on its own is not a reason to sell.
The 50 Line
RSI above 50 means average gains are bigger than average losses over the length. Many traders use 50 as a simple trend filter: look for longs while RSI holds above it and shorts while it stays below.
Divergence
Bearish divergence is price making a higher high while RSI makes a lower high, a sign the push is fading. Bullish divergence is price making a lower low while RSI makes a higher low. Wilder treated divergences as signals; later, Andrew Cardwell argued they mostly confirm the existing trend instead of calling a reversal (TradingView). Treat a divergence as a warning, then let price confirm it.
An illustration, not a real chart. Price pushes higher while the RSI peak gets lower.
Set Up the RSI on TradingView
The built-in RSI is all you need. Leave the defaults alone until you have a reason to change them, and mark your levels first with support and resistance or the volume profile.
Add the Indicator
Open Indicators at the top of the chart, search Relative Strength Index and click it. It loads in its own pane under the price.
Check the Defaults
The length is 14 bars and the levels are 70 and 30. Open the settings from the gear icon in the chart legend if you want to change them.
Match the Timeframe to Your Plan
A 14-period RSI on the daily chart covers 14 days. On a 15-minute chart it covers three and a half hours. Read it on the timeframe you trade.
Write Your Rule Down
For example: look for longs at support when RSI makes a higher low. A written rule can be tested; a feeling can't.
Using RSI in a Trade Plan
RSI works best as a second opinion on a level you already marked. Say Bitcoin pulls back to a support zone near $80,000, and RSI makes a higher low while price makes a slightly lower low, a bullish divergence. That gives you a reason to look for a long, and the support zone tells you where the idea is wrong.
The stop goes below the zone at $76,800. With a $10,000 account risking 1%, the position size calculator sizes the trade at 0.03050 BTC, so a loss costs $100 with fees. RSI found the setup. The stop and the size decide what it can cost.
Test the rule before you trust it. Count every time it fired, then put your average win and loss into the win rate calculator to see the win rate you need. Inside Data's Alpha Circle, every call comes with an entry, targets and a stop, every result is on the results page, and DataBot can pull up a chart with the key levels marked. New members can start with a free week.
- Account
- $10,000
- Risk per trade
- 1% = $100
- Entry
- $80,000
- Stop
- $76,800
- Stop distance
- 4.00%
- Position size
- 0.03050 BTC
- Position value
- $2,440.21
- Loss if the stop hits, fees included
- $100.00
- Target 1, close 50%
- $84,800
- Target 2, close 30%
- $89,600
- Target 3, close 20%
- $96,000
- Reward if all three hit, after fees
- $256.09
- Risk to reward
- 1 : 2.56
Questions People Ask
Short answers to what people search for most, in plain words.
What is the best RSI setting for crypto?
The default of 14 periods is the most widely used, and it is a sensible place to start. A shorter length reacts faster and gives more signals, along with more false ones. Change it only after testing on the market and timeframe you trade.
What does an RSI above 70 mean?
It means average gains have been much bigger than average losses over the length, which traders call overbought. It does not mean price has to fall. In a strong uptrend RSI can stay above 70 for a long time.
Is RSI a leading or lagging indicator?
RSI is calculated from past closing prices, so it reacts to what price already did. Divergences can show a move losing strength, so treat them as a warning to watch for.
What is RSI divergence?
Divergence is when price and RSI disagree. Bearish divergence is a higher high in price with a lower high in RSI. Bullish divergence is a lower low in price with a higher low in RSI.
Can you use RSI on its own?
It is better as a second opinion. Pair it with support and resistance to know where the trade idea is wrong, then size the position from the stop so a loss only costs what you chose.
Keep Reading
TradingView Indicators for Crypto Trading
Which job each indicator does, and how to keep a chart clean.
Support and Resistance
Mark the levels that give RSI signals meaning.
VWAP Indicator
The volume weighted average price, worked out by hand.
How to Trade Crypto
The seven steps, from your first order to your trade log.
Sources
- TradingView: Relative Strength Index (RSI)
- Sizing math: the position size calculator.
Every source was opened and checked on Nov 3, 2026.
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