How to use the RSI indicator

How RSI works

RSI measures the share of total movement that came from up moves over a period. Mostly rising prices push it towards 100, mostly falling ones towards 0. Wilder, who created it, used 14 periods, and that remains the default.

The 70 and 30 levels

Above 70 is usually called overbought and below 30 oversold; short-term traders sometimes use 80 and 20. Read these as "price has moved a lot in one direction", not "price is about to turn".

RSI sticks in strong trends

In a powerful uptrend RSI can stay above 70 for days. Selling just because it crossed 70 is how many traders lose in those phases. Check the trend with a moving average first; in an uptrend, a dip of RSI to 40 or 50 followed by a turn up is a more sensible pullback signal.

Divergence

When price makes a higher high but RSI makes a lower peak, momentum is fading. That is a warning, not a reversal signal on its own; wait for price to confirm, for example by breaking the latest swing low.

The 50 line

RSI holding above 50 means buyers have the upper hand; below 50, sellers. Used this way RSI becomes a trend filter rather than a contrarian tool.

Setting it up in MT4 or MT5

1. Insert, Indicators, Oscillators, Relative Strength Index.
2. Period 14, apply to Close, and add levels at 70 and 30 (or 80 and 20).

RSI or RCI

RCI, popular in Japan, ranks prices by date and measures how well the order lines up, so it looks at sequence while RSI looks at the size of moves. Both gauge stretch; you do not need both on the same chart.