What is RSI (relative strength index)?
RSI (Relative Strength Index) is a momentum oscillator that measures the price momentum of a crypto asset and shows the overbought and oversold zones. It takes a value between 0 and 100; in classic use, above 70 is interpreted as overbought and below 30 as oversold. It is one of the most widely used indicators in technical analysis.
How does RSI work?
RSI compares the average gains over a certain period (usually 14 candles) with the average losses. The result of this comparison measures how fast price has moved up or down. The result is converted to a value in the 0–100 range.
Basic calculation formula:
RSI = 100 - (100 / (1 + RS))
Where RS is the ratio of the average gains to the average losses over the period.
RSI levels
The traditional RSI interpretation is based on the following ranges:
| RSI value | Interpretation |
|---|---|
| 70 and above | Overbought zone |
| 30 and below | Oversold zone |
| 50 | Neutral level |
| Between 30-70 | Normal market movement |
The overbought zone shows that price has experienced a strong rise in a short time and the chance of a pullback has increased; the oversold zone shows that price has fallen quickly and a recovery may be on the way.
How is RSI used?
RSI is used for different purposes in different strategies:
- Detecting overbought/oversold: If RSI rises above 70, the chance of a short-term correction increases; if it falls below 30, the chance of a short-term recovery increases
- 50 level crossover: RSI crossing above 50 is interpreted as an upside momentum signal, and crossing below as a downside momentum signal
- Divergence: If price makes a new high but RSI cannot make the same high, upside momentum may be weakening. Similarly, if price makes a new low but RSI cannot make the same low, downside momentum may be decreasing
- Trend confirmation: In a strong uptrend, RSI may often go above 70; this is not a sell signal on its own
Note: RSI staying above 70 does not always mean an immediate fall. In strong uptrends, RSI can remain in the overbought zone for a long time. This shows the strength of the trend.
RSI period
The default period of RSI is 14 (Wilder's original recommendation). Lower periods (e.g., 7) make the indicator more responsive and produce more signals; however, the rate of misleading signals also increases. Higher periods (e.g., 21) produce fewer but stronger signals.
Using RSI on Paribu
In the Paribu app, on the Market Detail > Chart tab, you can turn on the RSI indicator from the indicator chips at the bottom of the screen while the candlestick chart is active. RSI is drawn in a separate panel; horizontal lines mark the 70 and 30 levels. This way, you can monitor the price chart and the momentum change at the same time.
Limitations of RSI
Although RSI is a strong indicator, it has some limitations:
- Insufficient on its own: Used as a supporting indicator, not as a definitive buy/sell signal
- Can be misleading in strong trends: It may stay in the overbought/oversold zone for a long time
- Most effective in sideways markets: Zone signals are more accurate when the trend is not strong
- Lag: Because the calculation is based on price data, it reacts after instant moves
Warning: RSI should not be used on its own to make a buy or sell decision. When evaluated together with volume, price formations and other indicators, healthier interpretations emerge.
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