RSI

RSI (Relative Strength Index) is a momentum oscillator that measures the speed and size of recent price gains relative to recent losses, plotted on a scale of 0 to 100. Readings above 70 are conventionally called overbought and below 30 oversold, with 14 periods as the standard lookback. High RSI means recent closes have been dominated by gains; low RSI, by losses.

Formula

RSI = 100 − 100 ÷ (1 + RS), where RS = average gain ÷ average loss over the lookback period.

Example: over 14 daily bars, a NIFTY stock’s up-days average ₹6 of gain and its down-days average ₹3 of loss. RS = 6 ÷ 3 = 2, so RSI = 100 − 100 ÷ 3 = 66.7 — strong momentum, just short of the overbought line. Hypothetical.

The common misreading: overbought is not a sell signal. In a strong trend, RSI can sit above 70 for weeks while price keeps climbing. Mean-reversion readings work best in range-bound markets; in trends, traders instead use RSI zones (holding above 40–50 as trend confirmation) or divergences.

Why it matters

For systematic traders, RSI’s value is that every one of those interpretations is a precise, testable rule: “buy below 30 and exit at 50” can be backtested on NSE data and will show — often unflatteringly — where it works, on which instruments and timeframes. RSI thresholds are also classic overfitting bait; 30/70 versus 25/75 should be a robustness check, not a tuning exercise.

In INDfolio AI, RSI conditions plug into strategy rules alongside other indicators and get validated by backtesting rather than assumption.