How to calculate RSI
RS = Average gain ÷ Average loss (over n periods)
RSI = 100 − 100 ÷ (1 + RS)
Wilder smoothing: Avg_t = (Avg_t−1 × (n − 1) + Current) ÷ n
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Worked example
- Over 14 periods the gains add up to 10 and the losses to 5.
- Average gain = 10 ÷ 14 = 0.714; average loss = 5 ÷ 14 = 0.357; RS = 2.
- RSI = 100 − 100 ÷ (1 + 2) = 66.67.
How to interpret RSI
RSI above 70 is traditionally overbought and below 30 oversold. In strong trends RSI can stay above 70 (or below 30) for weeks, so many traders use 50 as a trend filter and look for divergences rather than fading every extreme. The stochastic oscillator gives a faster read.
Limitations and common mistakes
- Wilder smoothing is the standard used by most charting platforms; the simple-average variant reacts faster and matches some textbooks.
- Shorter periods (e.g. 7) reach extremes more often; longer (e.g. 21) less often.