RSI
The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and magnitude of recent price changes to evaluate whether a security is in overbought or oversold territory. It ranges from 0 to 100 and is one of the most widely used technical indicators on Indian equity and F&O charts.
RSI was developed by J. Welles Wilder and published in 1978. It compares the average gains and losses over a specified period — typically 14 periods — to produce a normalised value between 0 and 100. An RSI above 70 has conventionally been described as overbought, suggesting the recent price rise has been rapid and potentially prone to consolidation. An RSI below 30 has been described as oversold, suggesting the recent decline has been sharp.
In Indian equity markets, RSI was heavily used on daily charts of Nifty 50, Bank Nifty, and individual large-cap stocks. Analysts noted when RSI approached or crossed the 70 or 30 thresholds as potential inflection signals. RSI divergence — where the price made a new high but RSI did not — was interpreted as a potential weakening of momentum, and vice versa for bearish divergences. These observations were treated as signals worth noting within a broader framework, not as standalone triggers.
A well-documented limitation of RSI is that strongly trending markets can keep RSI in overbought or oversold territory for extended periods without a price reversal. Nifty 50 during the sustained bull markets of 2020–2021 displayed RSI readings above 70 for weeks at a time without meaningful corrections. Treating the RSI overbought level as a mechanically actionable signal in such environments produced numerous false signals.
RSI period selection affects the indicator's sensitivity. The standard 14-period RSI is the most widely used, but shorter periods (e.g., 9-period RSI) produce a more volatile and reactive indicator, while longer periods (e.g., 21-period RSI) produce a smoother, less reactive signal. Indian traders on intraday charts sometimes used 9-period RSI on 15-minute or hourly Nifty charts to assess short-term momentum.
No technical indicator, including RSI, has predictive accuracy when used in isolation. RSI describes historical momentum conditions — where prices have been relative to a recent range. Whether a high RSI reading leads to a pullback or the market continues higher depends on numerous fundamental, liquidity, and macro factors that RSI cannot capture.