What Is RSI (Relative Strength Index)? How to Calculate and Interpret It

RSI (Relative Strength Index) was developed by J. Welles Wilder in 1978 and remains one of the most widely used technical indicators today. It measures the speed and magnitude of a stock's recent price movements to gauge whether it's "overbought" or "oversold."

How Is RSI Calculated?

RSI ranges from 0 to 100 and is calculated as follows:

RSI = 100 - (100 / (1 + RS))
RS  = Average Gain / Average Loss

The standard calculation uses 14 periods (e.g., 14 days):

1. For each of the last 14 periods, calculate the change in closing price versus the prior period.
2. Sum the positive changes (gains) and negative changes (losses) separately, then divide each by 14 to get the average gain and average loss.
3. Plug the ratio of these two values (RS) into the formula above.

A simple example: Suppose a stock's average daily gain over the last 14 days is 2.1 TL and its average daily loss is 1.4 TL.

RS  = 2.1 / 1.4 = 1.5
RSI = 100 - (100 / (1 + 1.5)) = 100 - 40 = 60

RSI comes out to 60 — slightly above the neutral 50 level, meaning buyers have had a modest edge recently.

What Do the 70/30 Levels Mean?

The most commonly used reference points when reading RSI are:

• RSI > 70: The stock is considered "overbought." Price has risen very quickly in the short term, increasing the odds of a pullback.
• RSI < 30: The stock is considered "oversold." Price has fallen very quickly, increasing the odds of a relief bounce.
• RSI ≈ 50: Buying and selling pressure are roughly balanced — no clear directional signal.

An important nuance: in strongly trending markets (including sharp BIST rallies or selloffs), RSI can stay in these zones for a long time. Treating "RSI above 70 = sell immediately" as a mechanical rule is a common mistake — it's healthier to read RSI in the context of the broader trend.

Divergence: RSI's Most Powerful Signal

One of RSI's most valuable uses is spotting divergence — moments when price and the indicator move in opposite directions:

• Bearish divergence: Price makes a new high while RSI makes a lower high — an early sign the uptrend is losing momentum.
• Bullish divergence: Price makes a new low while RSI makes a higher low — a sign the downtrend may be running out of steam.

Divergence alone isn't a definitive buy/sell trigger, but it's widely watched as an early warning of a potential trend change.

Combining RSI With Other Indicators

RSI measures momentum but says nothing about trend direction or volume. In practice, it's usually paired with:

• RSI + moving average (SMA/EMA): Confirm trend direction with the moving average, time entries/exits with RSI.
• RSI + MACD: When two momentum indicators agree (confluence), confidence in the signal increases.
• RSI + Bollinger Bands: When price pushes outside a band while RSI is in an extreme zone, that adds context on whether the move is likely to continue.

Common Mistakes

• Treating RSI as a standalone "buy/sell button" without context.
• Ignoring that RSI can stay in overbought/oversold territory for a long time during strong trends.
• Using the default 14-period setting unchanged on very short timeframes (1-5 minute charts), where it tends to produce noisy results.

Conclusion

Despite its simple formula, RSI is a powerful momentum indicator when used in the right context — most valuable when combined with trend, volume, and other indicators rather than used in isolation. On Lumina BIST you can track RSI alongside 13 other indicators on a single screen, and set instant Telegram alerts whenever RSI crosses a threshold you define.