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RSI (Relative Strength Index) Explained
RSI is a momentum oscillator that measures the speed and magnitude of recent price changes. It helps identify overbought, oversold, and reversal conditions. Learn how we use RSI in the Macro Model and Timing Model.
What it does
The Relative Strength Index (RSI) oscillates between 0 and 100. Values above 70 typically indicate overbought conditions; values below 30 suggest oversold. RSI is used to spot potential reversals, confirm trend strength, and filter false signals in trending and ranging markets.
Reading RSI values
- RSI < 30 (oversold): Market may be due for a bounce or reversal upward
- RSI ≈ 50 (neutral): Balanced momentum, no strong trend
- RSI > 70 (overbought): Market may be overextended, possible reversal or pullback
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Generate 12-month market outlooks using RSI alongside other technical and macro factors. Classify market regimes for stocks, ETFs, crypto, and forex.
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Use RSI for short-term momentum and reversal signals. Combine with other indicators for 5-day predictions.
Run Timing ModelHow it works
RSI looks at average price gains and losses over the last 14 periods (usually 14 days), compares the magnitude of recent gains to recent losses, and outputs a value from 0 to 100. Formula: RSI = 100 − (100 / (1 + RS)), where RS = average gain / average loss over the lookback period.
Key components
- Average gain: Mean of positive price changes over the lookback period
- Average loss: Mean of negative price changes over the lookback period
- Relative Strength (RS): Ratio of average gain to average loss
- RSI line: Final value 0–100 signaling overbought, oversold, or neutral conditions
RSI is most powerful for spotting divergences (price vs RSI moving in opposite directions), confirming trends, and timing entries/exits around overbought/oversold levels.
How we use it
For short-term (5-day) analysis: RSI values are used as features for our model alongside ADX, MACD, and others. The model learns to recognize reversal zones and momentum extremes, uses RSI divergences to spot early trend changes, confirms breakout strength, and uses neutral RSI to avoid choppy, directionless markets. RSI helps time entries and exits based on momentum shifts.
For long-term (12-month) forecasting: the model uses RSI to identify major market cycles and regime shifts, extended RSI extremes to spot long-lasting bull/bear phases, and RSI trends for volatility context. RSI combined with economic indicators improves macro trend calls and sector rotation timing.
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Sign UpFrequently Asked Questions
What is RSI?
RSI (Relative Strength Index) is a momentum oscillator that measures the speed and magnitude of recent price changes. It ranges from 0 to 100. Values above 70 typically indicate overbought conditions; below 30 suggest oversold. It helps spot reversals, confirm trend strength, and filter false signals.
How do you use RSI in the Macro Model and Timing Model?
RSI is used as a feature input alongside other technical and macro indicators. In short-term analysis it helps time entries/exits and detect reversal zones; in long-term forecasting it helps identify cycles, regime shifts, and sector rotation timing.
What is RSI divergence?
Divergence occurs when price and RSI move in opposite directions (e.g. price makes a higher high while RSI makes a lower high). It can signal early trend changes and potential reversals, and we use it in our models to spot momentum shifts.
Ready to use RSI in your analysis? Our Macro Model and Timing Model use RSI alongside other indicators for 12-month outlooks and short-term momentum signals.
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