What RSI Actually Computes

The formula in words

RSI (14-period default) compares the AVERAGE GAIN of up-days to the AVERAGE LOSS of down-days over the window, normalized to 0–100: RSI = 100 − 100/(1 + RS). All gains and no losses → RSI 100; all losses → 0. It measures the SPEED and consistency of the recent move — momentum, not level.

Why 70/30 fails in trends

In a strong uptrend RSI parks above 70 for WEEKS — "overbought" fires repeatedly while the stock doubles. Overbought means "strong," not "sell now." The oscillator works as a reversal tool only in RANGES; in trends it is a trend-strength gauge (holding 40–50 as support in an uptrend = healthy). The first lesson of oscillators: identify the regime BEFORE reading the extremes.

The 40–80 / 20–60 rule

Practitioner refinement: in an uptrend, treat 40–50 as the "oversold" zone (buyable dips) and 80 as merely strong; in a downtrend, resistance lives at 50–60 and 20 is just weak. Constance Brown's contribution: RSI ranges SHIFT with the trend — the fixed 70/30 is the beginner's error.

Sources

• Relative Strength IndexInvestopedia
• Technical Analysis for the Trading ProfessionalConstance Brown