The Relative Strength Index or RSI is a popular momentum oscillator developed by J. Welles Wilder* in the 1970s. The RSI compares the magnitude of a market’s recent gains to the magnitude of a market’s recent losses.
A simple formula calculates this price action into a number between 1 and 100. Markets with RSIs closer to 1 are considered oversold. Markets with RSIs closer to 100 are considered overbought.
RSI = 100 – (100/(1 + RS))
RS = average of x days up closes / Average of x days down closes*
Learn more about the Relative Strength Index from J. Welles Wilder’s original text: New Concepts in Technical Trading Systems
* The above definition of the Relative Strength Index comes from the book, High Probability ETF Trading, by Larry Connors and Cesar Alvarez.