What is RSI (Relative Strength Index)?
Crypto Glossary Definition
A technical analysis indicator used to identify overbought or oversold conditions when trading an asset.
Why RSI (Relative Strength Index) Matters
RSI is a 0-100 momentum indicator traders use to gauge whether an asset is overbought (often read above 70) or oversold (often below 30) based on recent price gains and losses. Like any single indicator, it's more reliable when read alongside other signals rather than in isolation.
RSI (Relative Strength Index) in Practice
A swing trader watching Solana's four-hour chart sees the Relative Strength Index climb above seventy-five after a sharp two-day rally, a reading that suggests the asset has been bought aggressively enough, relative to its recent selling, to be considered overbought. Rather than immediately shorting the asset on that signal alone, the trader waits for confirmation — perhaps a bearish divergence, where price keeps making new highs while RSI itself starts trending downward, hinting that buying momentum is quietly fading even as the price still looks strong. A few days later, after a pullback, RSI drops below thirty, signaling oversold conditions, and the trader considers this alongside a nearby support level and rising volume before opening a long position rather than treating the oversold reading as an automatic buy signal. This combination approach reflects how most professional traders actually use RSI: as one input among several, calculated from the average size of recent gains versus losses over a set lookback period, usually fourteen candles by default. Used in isolation, RSI can stay pinned above seventy for weeks during a strong trending market, generating false sell signals the entire time, which is why experienced traders treat extreme readings as a prompt to investigate further rather than a command to act.
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