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Intermediate · Lesson 4 of 9

RSI and momentum oscillators

7 minute read · By Krishna Avadhani, Vestora Academy · Updated 18 October 2026

The Relative Strength Index (RSI), created by J. Welles Wilder, compares average gains with average losses over 14 periods and scales the result from 0 to 100. Readings above 70 are called overbought and below 30 oversold.

In strong trends RSI can stay overbought for a long time, so selling just because RSI is 75 often means leaving early. Many traders use RSI more for divergence: price makes a new high but RSI makes a lower high, a sign momentum is fading.

The stochastic oscillator compares the close with the recent high-low range and works similarly. Oscillators suit range-bound markets; trend tools suit trending markets. Knowing which market you are in is half the skill.

Formula

RSI = 100 - 100 / (1 + RS), RS = average gain / average loss (14 periods)

Key takeaways

  • RSI above 70 = overbought, below 30 = oversold (not automatic sell/buy).
  • Divergence between price and RSI warns of fading momentum.
  • Oscillators work best in ranges.

Check your understanding

1. Price makes a higher high while RSI makes a lower high. This is called...

  • Convergence
  • Bearish divergence
  • A golden cross
  • A gap
Show the answer

Bearish divergence. Momentum is not confirming the new price high.

2. Why can selling at RSI 70 be a mistake in a strong uptrend?

  • RSI cannot exceed 70
  • RSI can stay high for weeks while the price keeps rising
  • RSI only works on crypto
  • It is illegal
Show the answer

RSI can stay high for weeks while the price keeps rising. Strong trends keep RSI elevated.

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General education only, not financial advice. Examples are illustrations. Rules, tax settings and products change; check official sources.