RSI Indicator (Relative Strength Index)

What is RSI

The Relative Strength Index (RSI) is a momentum oscillator developed by J. Welles Wilder. A momentum oscillator is an indicator that measures the speed and strength of recent price changes, not the price level itself. It is drawn in a separate window below the chart.

RSI moves between a fixed bottom and a fixed top. The middle of that scale is called the midline. Near the top, recent closes have mostly been higher than the ones before them. Near the bottom, recent closes have mostly been lower.

RSI also has an upper and a lower reference level. Readings above the upper level are commonly called "overbought" and readings below the lower level "oversold". These words only describe how strong the recent move has been. They do not tell you that price must turn. See overbought and oversold for more on these terms.

How the relative strength index is calculated

RSI compares the size of recent up moves with the size of recent down moves over a chosen number of bars (the period).

1. For each bar, the change from the previous close is calculated.
2. Positive changes count as gains. Negative changes count as losses, taken as positive values.
3. Gains and losses are averaged separately over the period. Wilder's method uses a smoothed average, close to an exponential average, so older bars keep a fading influence.
4. The ratio of average gain to average loss is called relative strength (RS).
5. RS is converted onto the fixed scale. When there are no losses in the window, RSI sits at the top. When there are no gains, it sits at the bottom.

Because of the smoothing, the value on a given bar depends slightly on how much history is loaded on the chart. Two platforms with different amounts of history can show small differences for the same bar.

Default settings: MetaTrader comes with a preset period, applied to the close, and preset upper and lower levels. Check the exact defaults in the indicator's settings window on your platform.

How to add RSI in MT4 and MT5

These steps are the same in both MetaTrader 4 and MetaTrader 5:

1. Open a chart.
2. Go to Insert → Indicators → Oscillators → Relative Strength Index. You can also drag it from the Navigator window.
3. On the Parameters tab, set the period and "Apply to" (close, open, high, low, median, typical or weighted price).
4. On the Levels tab, add, remove or change the reference levels. You can add the midline here too.
5. On the Colors tab (MT4) or the style settings (MT5), adjust the line.

To try settings without risking money, you can use a demo account. The Exness demo account runs on the same MetaTrader platforms.

How to read RSI: a drawn example

The sketch below is drawn by hand. It is not real market data.

What the sketch shows:

• Point A: price makes a high and RSI rises above the upper level. The up move was fast.
• Point B: price makes a higher high, but RSI peaks lower than at A. This is bearish divergence: price went further, but with less momentum. Bullish divergence is the mirror image at lows. More detail is on the divergence page.
• The dip between A and B: RSI falls through the midline. This shows momentum changing from up to down. It does not show where price will go next.

RSI in ranges and in trends

In a sideways range, price swings between support and resistance. RSI tends to reach the upper level near resistance and the lower level near support. This is the setting where overbought and oversold readings are most often discussed.

In a strong trend, RSI can stay above the upper level, or below the lower level, for a long time while price keeps moving. Treating every overbought reading in an uptrend as a sign of a top is a common and costly mistake.

Some analysts note a range shift. In an uptrend, RSI often stays in the upper half of its scale, and pullbacks end near the midline instead of at the lower level. In a downtrend, the opposite happens. Reading RSI together with market trends and market structure gives better context than reading the levels alone.

Common RSI strategy ideas

The list below describes how traders commonly use RSI. It is not a recommendation or a trading signal.

• Range reversals: watching for RSI to leave an extreme zone near a known level.
• Trend pullbacks: in a trend, watching RSI fall back towards the midline during a pullback.
• Divergence: comparing price swings with RSI swings, often on multiple timeframes.
• Failure swings: RSI fails to make a new extreme and then breaks its own previous swing, without reference to price.
• Midline crosses: used as a momentum filter, not as an entry trigger on its own.

Any of these can fail. Leveraged CFD and forex trading can lose money fast, so sizing and stop placement matter more than the indicator. See risk management.

Parameter choices for experienced traders

• Shorter period: more sensitive, more frequent extreme readings, more noise. Extreme readings come so often that each one means less.
• Longer period: smoother line, fewer extremes, later reaction. Divergences appear less often and form over longer swings.
• Wider levels: fewer readings in the extreme zones. Some traders use wider levels in trending markets.
• Narrower levels: more readings in the extreme zones. This is sometimes used with a long period to make up for the smoother line.
• Applied price: typical or weighted price includes the high and low, so the line reacts to intrabar range, not only the close.
• Timeframe: the same settings behave differently on lower and higher timeframes. Test them per instrument and timeframe rather than copying one set everywhere.

Stochastic RSI applies the stochastic formula to RSI itself. The result is far more sensitive and reaches its extremes much more often.

Where RSI misleads

• Strong trends: extreme readings can persist, and fading the move can mean taking losses repeatedly.
• The current bar: RSI recalculates until the bar closes. A reading or divergence on an open bar can disappear.
• Divergence without a turn: momentum can fade while price keeps drifting the same way. Several divergences can form in a row before any reversal, or none.
• Gaps and thin sessions: weekend gaps or low-liquidity hours can create sharp RSI jumps that say little about real momentum.
• News spikes: a single large bar can push RSI to an extreme and affect the smoothed averages for many bars afterwards.
• Different data feeds: brokers' price feeds and session times differ, so RSI values and divergences can differ between platforms.
• Lagging nature: RSI is built from past closes. See leading vs lagging indicators.
• Hindsight on charts: divergences look clear on a finished chart. In real time, you only know a swing has ended after more bars print.

Comparing RSI with price action, levels and a volatility measure such as ATR helps you judge whether a reading matters. Broader context is on the technical analysis page.

Frequent questions

What is RSI in simple words?

RSI is a line under the chart that shows whether recent closes have mostly been rising or falling, and how strongly, on a fixed scale.

Does overbought mean price will fall?

No. It means the recent rise was strong. Price can keep rising while RSI stays overbought, especially in a trend.

What are the default RSI settings in MT4 and MT5?

MetaTrader has a preset period, applies it to the close, and shows preset upper and lower levels. Open the indicator's Parameters and Levels tabs to see and change them.

Is there a best RSI period?

No single period fits every instrument or timeframe. Shorter periods give more noise, and longer periods react later. Test any setting on historical and demo charts.

What is the difference between RSI and the stochastic oscillator?

RSI compares average gains with average losses. The stochastic oscillator compares the close with the recent high-low range. They often move similarly but can disagree.

Can RSI be used alone?

It can be read alone, but on its own it gives many misleading readings. Most traders combine it with trend, levels and risk rules. Trading on any indicator can still lose money.