What is Relative Strength Index (RSI)?
A momentum oscillator measuring the speed and size of recent price moves, from 0 to 100.
Formal Definition
The Relative Strength Index (RSI), created by J. Welles Wilder, is a momentum oscillator scaled 0 to 100 that compares the magnitude of recent gains to recent losses, usually over 14 periods. Readings above 70 are conventionally overbought and below 30 oversold, and divergences between RSI and price can foreshadow reversals.
In Simple Terms
It is a 0-to-100 gauge of whether a stock has been bought or sold too aggressively lately. High readings hint it may be overheated and due for a pause; low readings hint it may be oversold.
Example
A stock with an RSI of 78 after a sharp rally is flashing overbought, warning that a pullback may be near.