Relative Strength Index (RSI)
A momentum oscillator scaled from 0 to 100 that measures the speed and size of recent price changes to flag overbought or oversold conditions.
Definition
The Relative Strength Index (RSI) is a momentum oscillator developed by J. Welles Wilder that plots a value between 0 and 100 based on the ratio of average gains to average losses over a lookback period — most commonly 14 bars. When RSI climbs above 70, the security is considered overbought; when it falls below 30, it is considered oversold. Unlike raw price, RSI normalises momentum so that readings are comparable across different stocks and timeframes.
Why it matters
Indian equity and F&O traders rely on RSI to time entries and exits in a market where price swings can be amplified by derivative activity. On NSE, a stock approaching weekly expiry with RSI above 75 on the daily chart often attracts contrarian option sellers who write calls expecting mean reversion. RSI divergence — when price makes a new high but RSI makes a lower high — is one of the most watched warning signals among swing traders in Nifty and Bank Nifty. In trending markets, RSI can remain elevated for weeks, so most experienced traders combine it with a trend filter such as a moving average before acting on overbought or oversold readings alone.
Formula
RSI = 100 − (100 ÷ (1 + RS))
where RS = Average Gain over N periods ÷ Average Loss over N periods.
Wilder's original smoothing uses an exponential method: the first average gain is a simple mean of the first 14 up-closes; every subsequent average gain = ((prior average gain × 13) + current gain) ÷ 14. The same applies to losses. This gives recent bars a slightly higher weight and reduces the indicator's sensitivity to a single outlier session.
Example
Suppose a Nifty midcap stock has closed up on 10 of the last 14 days. The average gain over those 14 days is ₹8.50 and the average loss is ₹2.20. RS = 8.50 ÷ 2.20 = 3.86. RSI = 100 − (100 ÷ (1 + 3.86)) = 100 − 20.6 = 79.4. A reading of 79.4 is well into overbought territory. A swing trader using the 70-level rule might wait for RSI to cross back below 70 before shorting, rather than acting the moment it pierced 70 on the way up — this is a hypothetical illustration and not a recommendation for any specific trade.
Track momentum with live data
Combine RSI signals with real-time open interest and options chain data on TradePulse.