What is RSI? The overbought/oversold indicator explained 
The relative strength index is one of the most widely used momentum oscillators in crypto trading, but most traders misread what it actually measures. This guide breaks down the RSI formula, explains how overbought and oversold signals work in practice, and covers the mistakes that turn a useful indicator into a losing strategy. Most traders learn RSI backwards. They start with the idea that 70 means “sell” and 30 means “buy,” treating the indicator like a traffic light for entries and exits. That mental model sounds logical, but it ignores what RSI actually calculates. The relative strength index does not measure whether an asset is expensive or cheap.
It measures how aggressively price has been moving in one direction compared to the other. Understanding that distinction is the difference between using RSI as a crutch and using it as a genuine analytical tool. RSI quantifies momentum by comparing the average size of recent up moves to the average size of recent down moves over a defined lookback period. The default period is 14, meaning the calculation considers the last 14 candles on whatever timeframe you are viewing.
Average gain is the sum of all positive price changes over the lookback period divided by N. Average loss is the sum of all negative price changes (expressed as positive numbers) divided by N. Periods with no change count as zero for both. What this produces is a bounded oscillator. When gains completely dominate losses, RS becomes very large and RSI approaches 100. When losses dominate, RS approaches zero and RSI drops toward 0. A perfect balance between gains and losses produces an RS of 1 and an RSI of 50.
