The Relative Strength Index (RSI) is a momentum indicator developed by J. Welles Wilder in 1978. It compares how large recent up-moves have been against recent down-moves and scales the result from 0 to 100. The standard setting, and the one MoonWire uses, is 14 periods.
How it is calculated
- For each bar, record the gain (if the close rose) or the loss (if it fell).
- Average the gains and the losses over 14 bars using Wilder's smoothing, which carries forward part of the previous average rather than dropping old bars abruptly.
- Compute RS = average gain ÷ average loss.
- RSI = 100 − 100 ÷ (1 + RS).
If a market only rose, average loss would be zero and RSI would be 100; if it only fell, RSI would be 0. A market whose gains and losses are equal sits at 50.
Reading the number
The traditional thresholds are 70 and 30. Above 70 is called overbought, below 30 oversold — but those words describe how stretched recent momentum is, not whether price will reverse. Strong trends can hold RSI above 70 for long stretches.
The bands MoonWire reports
Our multi-timeframe reads label the 14-period RSI on each timeframe with five bands:
| RSI | Label |
|---|---|
| 70 and above | overbought |
| 55 to 70 | bullish |
| 45 to 55 | neutral |
| 30 to 45 | bearish |
| below 30 | oversold |
The labels are descriptive shorthand for momentum on that chart. "Bullish momentum" means recent gains have outweighed recent losses on that interval; it is not a recommendation. RSI is most informative next to trend strength — a rising market with a falling efficiency ratio and an RSI drifting down from 70 is describing a trend that is losing force.