RSI definition

RSI stands for the relative strength index. It is a key tool used in technical analysis, assessing the momentum of assets to gauge whether they are in overbought or oversold territory.

To calculate RSI, follow this equation:

RSI = 100 – 100/(1+(average up closes/average down closes))

The RSI calculation gives a figure between 0-100. Most analysts believe that an asset at around the 70 level is in overbought territory and may be in for a correction, while an asset at or near 30 is oversold and may be in for a rally.

RSI example calculation

Let’s say that over the past month, Amazon has finished up an average of 5 points and down an average of 10. Divide 5/10 to make 0.5, then add one to make 1.5. Divide 100 by that number to make 66.66, then minus that from 100.

In this example, the current RSI of Amazon is 33.34.