Glossary term
RSI (Relative Strength Index)
Wilder's 1978 momentum oscillator. Compares the magnitude of recent gains to recent losses and outputs a value from 0 to 100. Above 70 is overbought, below 30 is oversold; divergences between price and RSI often precede reversals. The Pattern Scanner flags RSI divergences as one of 51 patterns in the Directional Alpha library.
Definition & Context
RSI measures the velocity of price changes. Over a lookback window (14 bars is the default), it computes the average of up-closes and the average of down-closes, then expresses the ratio as an oscillator from 0 to 100. Above 70 = overbought; below 30 = oversold; 50 is the dividing line between up-momentum and down-momentum. J. Welles Wilder Jr. introduced the metric in 1978 alongside ATR and ADX; RSI remains the most widely used momentum oscillator on Wall Street.
The extreme readings are less useful than the divergences. A stock making a higher high on lower RSI (bearish divergence) has been the reliable tell at almost every major top in liquid instruments for fifty years — and the inverse holds at bottoms. Multi-timeframe RSI divergence (daily + weekly agreeing) is one of the cleanest set-ups in technical analysis. RSI extremes alone are noisy; RSI divergences with volume confirmation are signal.
Why It Matters for Investors
Closelook’s Stock Detail page renders RSI (14) as an auxiliary pane alongside the OHLC and moving averages. The Pattern Scanner logs three RSI-based patterns from the Directional Alpha library: classic bullish/bearish divergence, hidden divergence (trend continuation), and failure swing (RSI makes a lower high while still above 50 in an uptrend). Because RSI is simple and public, its alpha is modest on its own — it does its best work as a filter layered onto other signals.
Related Concepts
RSI reads off the same OHLC stream as every other price-based indicator; its divergences are a classic Elliott Wave companion and it interacts with Linear Regression Channel breakouts.