Short answer: The Relative Strength Index, or RSI, is a tool that measures how quickly and how much a price has been moving, and turns that into a score between 0 and 100. It can flag conditions that may need a closer look, but it does not predict where prices will go and can mislead when used alone.
Last reviewed: 3 November 2026
At a glance
| Term | What it means |
|---|---|
| Momentum oscillator | An indicator that gauges how quickly and how much prices are changing, within a bounded range |
| RSI score | A number bounded between 0 and 100 |
| Average gain | The sum of price rises over the lookback window (the set of recent periods used), divided by the number of periods |
| Average loss | The sum of price falls over the lookback window, treated as positive magnitudes, divided by the number of periods |
| Bullish divergence | Price makes lower lows while RSI makes higher lows; hints at a possible reversal |
| Bearish divergence | Price makes higher highs while RSI makes lower highs; hints at a possible reversal |
Who created RSI, and what does it measure?
The RSI was devised by J. Welles Wilder in the late 1970s, and it is now widely used by traders and analysts. It belongs to a family of tools called momentum oscillators. Momentum is the speed at which a price is moving, and an oscillator is an indicator that swings within a fixed range rather than rising without limit.
RSI turns recent price movement into one score bounded between 0 and 100. The score answers a narrow question: over the recent window, how strong have the price rises been compared with the falls? It uses only prices, so it says nothing about company earnings, news, or the reasons behind a move.
How is RSI calculated?
The calculation starts with two figures: average gain and average loss. Each is taken over the lookback window. You find it by adding up the relevant price changes and dividing by the number of periods. Losses are treated as positive magnitudes, so a fall adds a positive amount to the loss total.
Hypothetical example, with invented figures: a share priced in rupees has daily changes over five sessions of +Rs 4, -Rs 2, +Rs 3, -Rs 1 and +Rs 2. The gains add up to Rs 9 (4 + 3 + 2), and the losses add up to Rs 3 (2 + 1, counted as positive). The average gain is Rs 9 divided by 5, which is Rs 1.80, and the average loss is Rs 3 divided by 5, which is Rs 0.60.
The score is built from these two averages. The arithmetic is the same for a share listed on the National Stock Exchange or the BSE, since only the price series changes. The example shows how the averages are formed, not what score this data would produce.
What is divergence, and why do analysts watch it?
Divergence is a mismatch between the price and the indicator. Bullish divergence arises when price makes lower lows while RSI makes higher lows. Bearish divergence arises when price makes higher highs while RSI makes lower highs. Both are read as hints of a possible reversal, meaning the current direction may be losing momentum.
The catch is that a divergence is a hint, not a confirmation. Price can keep moving in the same direction after a divergence appears. A reversal is possible, but the indicator does not establish that it will happen.
Where does RSI give misleading readings?
RSI can produce false signals, particularly during strong trending markets. In a steady uptrend or downtrend, the reading can stay at the same extreme for long periods while prices keep moving the same way. A reader who treats each extreme as a turning point can be wrong repeatedly in such phases.
This is why RSI is generally prone to misleading readings when used alone. Its score depends only on price changes inside one window, so a short burst of large moves can shift it sharply. A single number cannot show the wider context of a trend.
Can RSI tell you where prices are going?
No. RSI does not predict future prices. It only highlights conditions that may need attention, such as a long run of one-way movement or a divergence worth checking.
For this reason, RSI works best when combined with other tools, such as trend lines and support and resistance levels. A trend line is a straight line drawn along a series of rising or falling prices. Support is a price level where falling prices have tended to stop, and resistance is a level where rising prices have tended to stop. Checking RSI against these levels gives context the score cannot provide, though these tools have limits too, and combining them does not remove the risk of a wrong read.
Frequently asked questions
Who invented the RSI?
J. Welles Wilder devised the RSI in the late 1970s. It is now widely used by traders and analysts.
Does a high or low RSI reading tell me what the price will do next?
No. RSI does not predict future prices; it only highlights conditions that may need attention.
What does divergence signal?
Bullish divergence (price makes lower lows while RSI makes higher lows) and bearish divergence (price makes higher highs while RSI makes lower highs) both hint at a possible reversal.
Can RSI be used on its own?
RSI can produce false signals, particularly during strong trending markets, so it is generally prone to misleading readings when used alone. It works best combined with tools such as trend lines or support and resistance.
Sources and last check
Facts in this article were checked against the sources below on 3 November 2026. Rules and figures can change; check the primary source before acting.
- kotakneo.com (broker education)
- icicidirect.com (broker education)
- groww.in (broker education)
- dhan.co (broker education)
- 5paisa.com (broker education)
This article is general information, not investment advice. MyFinanceBandhu is not a SEBI-registered investment adviser.
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