The Relative Strength Index (RSI) is a momentum oscillator developed by J. Welles Wilder Jr. in 1978. It measures the speed and magnitude of recent price changes to evaluate whether an asset is overbought or oversold. RSI oscillates between 0 and 100 and is typically displayed as a line chart below the price chart.

The RSI calculation starts by computing price changes between consecutive closing prices. These changes are separated into gains and losses. The average gain and average loss are first calculated as simple averages over the lookback period, then smoothed using the formula: Avg Gain = (Prev Avg Gain x (n-1) + Current Gain) / n. The Relative Strength (RS) is then: RS = Average Gain / Average Loss, and the RSI is: RSI = 100 - (100 / (1 + RS)).

The standard interpretation uses 70 as the overbought threshold and 30 as the oversold threshold. When RSI rises above 70, the asset may be getting overextended to the upside and could be due for a pullback. When RSI falls below 30, it may be oversold and due for a bounce. However, in strong trends, RSI can remain overbought or oversold for extended periods. Traders also watch for RSI divergences, where the RSI direction disagrees with the price direction, as these can signal potential trend reversals.