RSI - Relative Strength Index
RSI is one of those indicators that almost everyone meets pretty early in their trading journey. It sits quietly underneath the chart, bouncing between 0 and 100, while traders everywhere wait for it to hit 70 so they can yell “OVERBOUGHT!” or 30 so they can yell “OVERSOLD!” The problem is, RSI is a little more useful than that. RSI, or Relative Strength Index, is a momentum indicator. In simple terms, it helps us understand how strongly price has been moving and whether that momentum is strengthening or beginning to lose steam. A strong market can remain overbought or oversold for much longer than you might expect, so we're not using RSI as a magical reversal button. What gets our attention is when RSI and price start telling different stories. Price might continue pushing to new highs while RSI struggles to do the same, giving us bearish divergence. Or price may make a new low while RSI begins pushing higher, creating bullish divergence. Neither means price must immediately reverse, but it tells us something underneath the candles may be changing. Used alongside market structure, key levels and price action, RSI gives us another way of looking at momentum rather than simply looking at price. Price tells us where the market has gone. RSI gives us a clue about how much enthusiasm it had getting there.
What is RSI actually measuring?
RSI stands for Relative Strength Index and is a momentum oscillator developed by J. Welles Wilder. It moves between 0 and 100 and measures the strength of recent upward price moves compared with the strength of recent downward price moves.
The standard RSI uses 14 periods. Behind the scenes, it compares the average gains and average losses over that period and converts the relationship into a number between 0 and 100.
The basic calculation is:
RS = Average Gain ÷ Average Loss
RSI = 100 − [100 ÷ (1 + RS)]
You absolutely do not need to calculate that while you're sitting in front of a chart. TradingView has kindly saved us from spending our afternoons doing algebra. What matters is understanding what the calculation is telling us.
When recent gains are dominating recent losses, RSI moves higher. When losses are dominating gains, RSI moves lower.
So RSI isn't really telling us whether something is expensive or cheap. It's telling us about momentum.
What about 70 and 30?
Traditionally, an RSI above 70 is described as overbought and below 30 as oversold.
Useful information, but this is where RSI gets abused.
Overbought does not mean “SELL.”
Oversold does not mean “BUY.”
A strong trend can remain overbought or oversold for quite some time. Selling simply because RSI crossed 70 can be a fantastic way of standing in front of a train while confidently pointing at your indicator. 🚂
We're much more interested in what RSI is doing relative to price.
Back to the party
We already use the party analogy with OBV, so let's bring our old mate RSI through the front door as well.
Think of price as the party itself.
OBV tells us how many people are still turning up.
RSI tells us how much energy is left in the room.
Price is pushing higher. Music is pumping. Someone has inexplicably ended up in the pool.
OBV is also making higher highs. More people are arriving.
RSI is pushing higher. The energy is still building.
Party very much alive.
But then things begin to change.
Price makes another higher high, but OBV doesn't follow it. Fewer people are coming through the door.
At the same time, RSI makes a lower high. The people already inside aren't quite dancing like they were twenty minutes ago.
Price is telling us:
“THIS PARTY IS GETTING BIGGER!”
OBV and RSI are standing together in the kitchen saying:
“Mate... everyone's leaving.”
That's when we pay attention.
When OBV and RSI agree against price
This is one of the relationships we particularly like watching at OXFX.
Suppose price makes:
Higher High → Higher High
while OBV makes:
Higher High → Lower High
and RSI makes:
Higher High → Lower High
Now we've got bearish divergence in both participation and momentum.
Price is continuing higher, but the two things helping us look underneath that price move are weakening.
Or flip the whole thing upside down.
Price makes a lower low, while OBV and RSI both begin making higher lows.
Selling participation is weakening.
Downward momentum is weakening.
Yet price has managed to grind out another low.
Something has changed.
Does that mean we enter?
No.
And this bit matters.
Divergence is information, not an entry signal.
OBV and RSI disagreeing with price doesn't mean we smash the opposite button and start choosing the colour of our Lamborghini.
It means:
The party might be winding down. Start watching the door.
Now we look toward the things that actually help us make a trading decision:
Market structure. Key levels. Support and resistance. Price action. Displacement. Rejection. Confirmation.
If those begin agreeing with what OBV and RSI have already been whispering to us, the picture becomes much more interesting.
The OXFX way of looking at it
We don't use RSI to predict the future.
We use it to ask another question about what's happening right now.
Price tells us where the party is.
OBV tells us whether people are still turning up.
RSI tells us whether they've still got any energy left.
When all three are moving together, there's little reason to argue with the party.
But when price keeps marching in one direction while both participation and momentum start heading the other way, we stop blindly trusting what we're seeing on the candles.
Price might still be partying.
But OBV and RSI are already calling the Uber. 😂
