What Is RSI (Relative Strength Index) and How Do You Read It?
Measures how hard a stock has moved recently, 0-100. Below 30 usually means it has fallen a lot short-term, above 70 means it has risen a lot — it does not predict direction.
RSI, the Relative Strength Index, compresses the last 14 days of gains and losses into a single number between 0 and 100. A high reading means recent closes have mostly been up-days; a low reading means they have mostly been down-days. It measures the force of a recent move, not where the price is going next.
How it is calculated
RSI looks at the last 14 trading days and separates them into up-days (close higher than the previous close) and down-days. It averages the size of the up-moves and the size of the down-moves, then compares the two:
- Relative strength (RS) = average gain over 14 days divided by average loss over 14 days.
- RSI = 100 minus 100 divided by (1 plus RS).
In words: if gains and losses have been equal in size, RSI sits at 50. If there were no down-days at all, it approaches 100; if there were no up-days, it approaches 0. Most implementations, including the one Stock Compass uses, smooth the averages so that a single big day does not swing the reading wildly. The 14 is a convention from the indicator's original design; shorter windows move faster and noisier, longer windows move slower.
Rules of thumb
| RSI(14) | What it usually means |
|---|---|
| Above 70 | Conventionally called overbought: the stock has risen hard and fast recently |
| 50 to 70 | Upward pressure, nothing extreme |
| 30 to 50 | Downward pressure, nothing extreme |
| Below 30 | Conventionally called oversold: the stock has fallen hard and fast recently |
These bands are conventions, not laws. In a strong uptrend RSI can sit above 70 for weeks while the price keeps climbing, and in a collapsing stock it can stay below 30 all the way down. "Overbought" describes what has already happened; it is not a prediction that the move will reverse.
What it does not tell you
- Direction. An RSI of 25 says the stock fell hard. It does not say the fall is over. Cheap-looking readings can get cheaper.
- Why. RSI has no idea whether the move came from earnings, a rights issue, a sector rotation or a rumour. The same number can mean very different things.
- Size or value. RSI is bounded 0-100 and ignores volume, market cap and valuation. Two stocks with RSI 72 may have moved 4% and 40% respectively.
In Stock Compass
RSI(14) is the first cell of the metric strip on every stock card, next to vs 20d High and Vol Ratio. The value is highlighted when it is below 30 or above 70. In the card verdict, the price-momentum section adds a caution note in either extreme — "the recent run-up has been steep" above 70, "the recent decline has been steep" below 30 — because both describe a stretched move, not a good or bad one. RSI also feeds 40% of the position health score for stocks you hold.
RSI is a rule indicator in the strategy builder under Trend & Momentum. Its id is rsi, and a condition looks like rsi < 30 (the default) or rsi > 70. Typically you combine it with a trend filter such as ADX rather than using it alone. The guide Turn your logic into buy rules walks through how these conditions are written and combined.
FAQ
Is RSI below 30 a buy signal?
No. Below 30 is a description: the stock has fallen a lot over the past 14 days. Whether that turns into a rebound or a longer decline depends on things RSI cannot see, which is why most rule sets pair it with a trend or volume filter.
Why does Stock Compass use 14 days?
14 is the period the indicator was originally designed with and remains the default almost everywhere, so readings are comparable with charts you see elsewhere. Shorter windows produce more signals and more noise.
Can RSI stay above 70 for a long time?
Yes. In a strong uptrend RSI can hold above 70 for weeks as the price keeps rising. That is why the app labels the zone as a steep run-up rather than as a reversal signal.
How is RSI different from Relative Strength (RS)?
Despite the similar name, they measure different things. RSI compares a stock's own gains with its own losses; RS compares the stock's one-month return with a market benchmark such as the S&P 500.
Definition only — not investment advice.