Forex glossary
Relative Strength Index (RSI)
Wilder's RSI compares smoothed gain and loss magnitudes on a 0–100 scale. A common period is 14, with conventional overbought and oversold thresholds at 70 and 30. Its reading is neither a movement probability nor a percentage of rising candles, and does not alone specify a trade.
Illustrative example
How does it work in practice?
Assume smoothed average gains of three USD and average loss magnitudes of one USD. RSI is 100 × 3/(3+1) = 75 points; this is not a 75% probability of a price rise.
A case to work through
Change magnitudes rather than candle counts
Hypothetically, smoothed average gains=2 and loss magnitudes=3.
- RSI=100×2/(2+3)=40.
- The reading depends on smoothed change magnitudes; it does not say 40% of candles rose.
What follows? Describe the value as a formula-based indicator.
Example boundary: Initialization and smoothing affect the series; a threshold does not give a future-move probability.
A useful distinction
Relative Strength Index (RSI) / Stochastic Oscillator
RSI compares smoothed gains and losses; stochastic locates the close within a high–low range.
Check your understanding
Calculate RSI from two specified smoothed inputs.
Show the answer and explanation
80
RSI = 100 × 4 / (4 + 1) = 80. This is an indicator reading from the stated smoothed inputs, not an 80% chance of rising.
Oscillators without mixed scales
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Read the fuller explanation
Related terms
Sources and documentation
- TradingView – RSI
RSI gain/loss calculations, conventional thresholds and divergence interpretation.
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