RSI — Relative Strength Index
Understanding momentum, overbought, and oversold conditions
What is RSI?
The Relative Strength Index (RSI) is a momentum indicator that measures how fast and how much a price has been moving recently. It outputs a number between 0 and 100.
It was created by J. Welles Wilder in 1978 and is still one of the most widely used indicators in trading today — both by human traders and algorithmic systems like EGY-AI.
The RSI scale
RSI is always between 0 and 100. The key levels to know:
The asset has been rising strongly. Some traders see this as a signal to sell or expect a pullback — though the price can keep rising even above 70.
Normal trading range. No strong overbought or oversold signal. Most of the time BTC RSI sits here.
The asset has been falling strongly. Potential buy signal — though a falling asset can keep falling past 30 too.
How RSI is calculated
RSI is based on the average gains vs average losses over a lookback period (usually 14 candles):
When gains dominate → RS is large → RSI approaches 100.
When losses dominate → RS approaches 0 → RSI approaches 0.
How EGY-AI uses RSI
EGY-AI's genetic algorithm evolves two RSI parameters per strategy:
The GA evolves these values rather than fixing them at the textbook 70/30. Some market conditions reward a tighter threshold (60/40), others a looser one (80/20). The algorithm finds what works best on recent real data.
RSI limitations
RSI is useful but not perfect. In strong trending markets, it can stay overbought (above 70) or oversold (below 30) for a long time without the price reversing. This is called a "sustained trend" and it catches many traders who blindly sell every time RSI hits 70.
This is one reason EGY-AI combines RSI with moving averages rather than using RSI alone — multiple signals together are more reliable than any single indicator.
Key vocabulary
- RSI
- Relative Strength Index. A 0–100 momentum indicator.
- Momentum
- The speed and magnitude of recent price movement.
- Overbought
- RSI above 70 — asset has risen strongly, potential reversal zone.
- Oversold
- RSI below 30 — asset has fallen strongly, potential bounce zone.
- Period (14)
- The number of candles RSI looks back over. 14 is the standard.
- Divergence
- When price makes a new high but RSI doesn't — a potential reversal signal.