RSI (Relative Strength Index)

What Is RSI?

RSI was developed by J. Welles Wilder in 1978 and has become a staple indicator in crypto trading. It calculates the ratio of recent upward price movements to recent downward movements over a configurable period, typically 14 candles. The result is normalized to a 0-100 scale, where high values indicate the asset may be overbought and low values indicate it may be oversold.

On trading platforms like TradingView, DexScreener, and centralized exchange interfaces, RSI appears as a line oscillating below the main price chart. Traders use RSI to assess whether a token has moved too far too fast and may be due for a reversal or a cooling-off period.

How RSI Works

The RSI formula divides the average gain of up-periods by the average loss of down-periods over the lookback window (default 14 periods). When gains consistently exceed losses, RSI rises toward 100. When losses dominate, RSI falls toward 0. The standard interpretation labels readings above 70 as overbought and below 30 as oversold.

Beyond simple overbought/oversold signals, traders watch for RSI divergences. Bullish divergence occurs when the price makes a lower low but RSI makes a higher low, suggesting weakening downward momentum. Bearish divergence occurs when the price makes a higher high but RSI makes a lower high, warning that the uptrend may be losing strength. In crypto, RSI divergences on the 4-hour and daily charts frequently precede significant reversals.

Why RSI Matters

RSI provides a quantified measure of momentum that complements price-based analysis. In crypto's volatile markets, prices routinely overshoot in both directions. RSI helps traders identify when these moves are extended and likely to reverse. Many automated trading strategies incorporate RSI thresholds as filters — for example, only taking long positions when RSI is below 40, or reducing position size when RSI exceeds 75.