Relative Strength Index (RSI)

RSI is a momentum gauge that measures how fast and how far a market has moved recently, on a 0–100 scale. Traders use it to describe conditions as "overbought" or "oversold" — but those words mean far less than most people assume.

In 30 Seconds

• RSI measures momentum on a 0–100 scale — how strong recent gains have been versus recent losses.
• "Overbought" (high) and "oversold" (low) do NOT mean "about to reverse." That's the biggest myth about RSI.
• A market can stay "overbought" for a long time during a strong trend — the reading is a description, not a turning point.
• MPM treats RSI as an objective, disclosed condition — the exact threshold is shown in "What ran" — and reports what history did afterward, never a signal.

Definition

RSI was introduced by J. Welles Wilder in 1978. It measures the *relative* strength of recent up-moves versus down-moves over a lookback period (classically 14). The calculation compares average gains to average losses and maps the result onto a 0–100 scale:

• Near 100 — recent movement has been almost all gains.
• Near 0 — recent movement has been almost all losses.
• Near 50 — gains and losses have been roughly balanced.

The popular thresholds are 70 (often called "overbought") and 30 (often called "oversold"). But it's crucial to understand what those words *actually* mean: "overbought" means momentum has been strongly upward, not that price is "too high" or "due to fall." That distinction is the difference between using RSI honestly and misusing it.

"RSI measures momentum, not mispricing. "Overbought" is a description of the past, not a prediction of the future."

Why It Matters

RSI is one of the most-watched indicators in trading, which makes understanding it correctly genuinely important — because the *common* understanding of it is mostly wrong, and trading on that misunderstanding is expensive.

The myth is: "RSI is overbought, so price will fall." The reality is that RSI going above 70 is one of the *hallmarks of a strong uptrend* — during powerful moves, RSI can sit above 70 for days or weeks while price keeps climbing. Selling every time RSI crosses 70 means fighting exactly the trends you'd most want to be with.

What RSI genuinely offers is a standardized, objective description of momentum that's comparable across markets and time. That's useful — as a *condition to study*, not a *signal to obey*. The right question is never "RSI is oversold, should I buy?" It's "when RSI has been this low in this market's history, what actually happened next?" — which is a very different, and far more honest, question.

How It Works (a simple example)

Imagine a market that has risen on most of its recent bars, with only small pullbacks. Its average gains will be large relative to its average losses, so RSI will read high — perhaps 75. A trader watching only the number might call it "overbought" and expect a drop.

But now picture *why* RSI is 75: the market is in a strong, healthy uptrend. That same "overbought" reading has appeared near the *start* of many large rallies. The number correctly describes what happened (strong recent gains); it does not tell you what happens next. If the trend continues, RSI can stay elevated for a long time. If it reverses, RSI will fall — but the reading didn't cause or foretell either.

This is the core lesson: RSI is a *lagging description* of momentum, computed entirely from past bars. It's informative about the recent past and meaningless as a standalone forecast.

How MPM Uses RSI

MPM treats RSI as an objective, disclosed condition — not a signal. Two principles govern this:

• The threshold is explicit and disclosed. When you ask about an "oversold" condition, HIE translates that into a precise RSI threshold and shows you exactly what it used in the "What ran" line — so "oversold" is never a vague vibe, it's a stated number you can see.
• Direction stays context-only. HIE never says "RSI is oversold, therefore buy." It reports how the market *historically behaved* after that RSI condition, beside the base rate — so you can see whether the condition actually changed anything, which most of the time it doesn't.

HIE uses a 14-period RSI (Wilder-smoothed), labelled "RSI(14)" in reports. "Oversold" and "overbought" are objective, disclosed conditions: internally they're set at the low and high ends of the scale, and the "What ran" line shows them on the standard 0–100 scale — for example:

'oversold' → RSI below 30
'overbought' → RSI above 70

So when you ask about an oversold condition, you see the exact threshold used, stated the familiar way traders read RSI.

Interpretation

• High RSI (e.g. above 70) — strong recent upward momentum. Common in healthy uptrends; NOT a reliable reversal signal.
• Low RSI (e.g. below 30) — strong recent downward momentum. Common in downtrends; NOT a reliable bounce signal.
• RSI near 50 — balanced momentum; no strong recent bias either way.
• RSI staying extended — during strong trends, RSI can remain "overbought" or "oversold" far longer than intuition suggests. Duration at an extreme is a feature of trends, not a countdown to reversal.

The honest reading: RSI describes the *character* of recent movement. Whether that character persists or reverses is a separate question that RSI alone cannot answer — which is exactly why MPM pairs the condition with historical evidence rather than a signal.

Common Mistakes

"Overbought means it's going to fall."

The single most expensive RSI myth. Overbought means strong upward momentum — which often continues. Reversal is a separate question RSI doesn't answer.

"RSI oversold is a buy signal."

In a downtrend, RSI can stay oversold while price keeps falling. "Oversold" is not "cheap" and not "about to bounce."

"RSI 70/30 are magic levels."

They're conventional, not universal. Different markets and conditions behave differently at the same reading — which is why what matters is the *historical behavior* after a level, not the level itself.

"A single RSI reading tells me something actionable."

RSI is one lagging description of momentum. On its own, out of context, it's information — not an edge.

What It Is Not

• Not a reversal signal. High or low RSI describes momentum, not an impending turn.
• Not a measure of value. "Overbought" doesn't mean "expensive"; "oversold" doesn't mean "cheap."
• Not a prediction. RSI is computed entirely from past bars; it describes, it doesn't forecast.

Limitations

RSI is a lagging indicator — computed from past price, it reflects momentum that has already occurred and can't anticipate a change before it happens. Its popular thresholds (70/30) are conventions, not laws, and markets frequently violate the intuition behind them, especially in strong trends where "overbought" and "oversold" persist. RSI also says nothing about *why* momentum is what it is, and nothing about direction going forward. Like any single indicator, it's a partial description of one dimension of market behavior, most useful when paired with evidence about what actually followed similar readings in the past.

How This Fits Into MPM

The result is a page that answers the question traders *really* have ("does oversold actually work?") with evidence rather than folklore. It's also why MPM's "oversold" is a stated threshold you can see, not a vague label.