glossary-what-is-relative-strength-index-rsi
Plain-English Definition The Relative Strength Index (RSI) is a momentum indicator that measures the magnitude of recent price changes to determine overbought or oversold conditions. It is calculated by dividing the aver…
title: "What is Relative Strength Index (RSI)? Definition, Formula, and Example"
slug: "glossary-what-is-relative-strength-index-rsi"
date: "2026-10-02"
author: "Tapeboard Staff"
tags: ["glossary", "indicators", "technical-analysis"]
excerpt: "The Relative Strength Index (RSI) is a momentum indicator that measures the magnitude of recent price changes to determine overbought or oversold conditions."
Plain-English Definition
The Relative Strength Index (RSI) is a momentum indicator that measures the magnitude of recent price changes to determine overbought or oversold conditions. It is calculated by dividing the average gain of up days by the average loss of down days over a given period. The RSI is then plotted as a line on a chart, with values ranging from 0 to 100. The RSI is used to identify whether a stock or other security is overbought or oversold, and to determine potential buying or selling opportunities.
How it's Calculated / Identified
The RSI is calculated using the following formula:
RSI = 100 - (100 / (1 + RS))
where RS is the average gain of up days divided by the average loss of down days.
Worked Example
Let's say we are using the RSI to analyze the stock of AAPL. We calculate the RSI over a 14-day period, and the results are as follows:
- Average gain of up days: $5.00
- Average loss of down days: $-2.00
- RS: 2.50
- RSI: 70.00
This indicates that the stock is slightly overbought, with an RSI value above 70.
When Traders Use it
Traders use the RSI to identify potential buying or selling opportunities based on overbought or oversold conditions. For example, if the RSI is above 70, it may indicate that the stock is overbought and due for a correction. Conversely, if the RSI is below 30, it may indicate that the stock is oversold and due for a bounce.
Limitations / Common Misconceptions
The RSI is a momentum indicator, and it does not take into account other factors that may affect the stock's price, such as changes in the underlying economic conditions or news events. Additionally, the RSI is not a precise indicator, and it may not always accurately predict overbought or oversold conditions.