RSI (Relative Strength Index)

The RSI (Relative Strength Index), developed by J. Welles Wilder in 1978, measures whether a stock has been recently overbought or oversold. Readings above 70 traditionally signal overbought conditions (potential sell or at least caution); readings below 30 signal oversold conditions (potential buy). The 14-day RSI is the most common setting.

RSI is calculated based on average gains vs. average losses over the lookback period. It's a 'bounded' oscillator — it can never go above 100 or below 0, making extreme readings more meaningful than in unbounded indicators. RSI works best in range-bound markets; in strong trends, a stock can stay overbought or oversold for extended periods.

Example: During the 2022 market selloff, many high-quality stocks registered RSI readings below 25 — deeply oversold by historical standards. Investors who used this as a starting point for fundamental research found some of the best buying opportunities of the decade, as many of these stocks doubled in the following 12 months.

RSI is one of the technical indicators available in BMInsider's market tools, particularly useful when combined with the Fear & Greed Index to identify potential turning points.