RSI explained: momentum, divergence and the 70/30 myth

The relative strength index measures the speed of price moves. Here’s how to read it properly — and why “sell at 70” is the most expensive oversimplification in retail trading.

Updated July 2026 · 9 min read

What RSI actually measures

RSI compares the average size of recent up-moves against recent down-moves and compresses the result into a 0–100 scale. Above 70 is conventionally “overbought”, below 30 “oversold”. What it really measures is momentum — how one-sided the last N bars have been.

RSI = 100 − 100 / (1 + avg gain / avg loss)

PriceRSI 14Overbought 70Oversold 30

Price with RSI 14 below — the shaded band is the 30–70 neutral zone. · Illustrative data — past performance is not a reliable indicator of future results.

The 70/30 myth

In a strong uptrend, RSI can sit above 70 for weeks while price doubles. Selling the first overbought reading is how traders short the strongest markets on the chart. Overbought means the move is fast — it does not mean the move is over.

Rule that survives contact with real markets: in an uptrend, treat RSI dips toward 40–50 as pullback buy zones. Reserve the classic 70/30 reversal reading for ranging markets.

Divergence — the highest-value signal

When price makes a new high but RSI makes a lower high, the move is running on fewer participants — bearish divergence. New price low with a higher RSI low is bullish divergence. Divergences don't time the turn precisely, but they flag exhaustion earlier than any crossover.

Confirm divergence with structure: wait for the trendline or last swing to actually break.
Higher timeframes produce more reliable divergences than 1-minute noise.
Combine with the 50-EMA trend filter to avoid counter-trend knife-catching.