The Relative Strength Index (RSI) was developed by J. Welles Wilder in 1978, and it remains one of the most trusted momentum oscillators in a trader’s toolkit. At its core, RSI measures the speed and change of recent price movements, oscillating between 0 and 100 on a rolling basis — typically over a 14-period window.
What the Numbers Mean
The two thresholds you’ll hear most often are 70 and 30.
- RSI above 70 signals that a security may be overbought — the price has risen sharply relative to recent history, and a pullback or consolidation could be coming.
- RSI below 30 suggests the asset may be oversold — it has dropped hard enough that a bounce or reversal becomes increasingly probable.
Neither reading is a standalone buy or sell trigger. Context matters enormously. During a strong trending market, RSI can stay above 70 for weeks; in a prolonged downtrend, it can hug the 30 level without ever reversing.
Beyond the Extremes: Divergence Signals
Some of the most reliable RSI signals come not from the absolute number, but from divergence — when price action and RSI move in opposite directions.
- Bearish divergence: price makes a new high but RSI makes a lower high. Momentum is fading, even if price hasn’t confirmed it yet.
- Bullish divergence: price makes a new low but RSI makes a higher low. Selling pressure is weakening underneath the surface.
How TradeCompass Uses RSI
TradeCompass incorporates RSI as one component of a multi-factor momentum score. Rather than issuing binary overbought/oversold alerts, the platform weights RSI readings alongside volume trends, moving average positioning, and sector-relative performance. A single RSI reading rarely flips a score on its own — but it contributes meaningfully to the overall momentum picture.
The result is a signal that cuts through noise: instead of reacting to every trip above 70, TradeCompass highlights the stocks where RSI extremes align with confirming factors across the full indicator set.
Understanding what RSI measures — and what it doesn’t — helps you interpret those scores with the right context.