The relative strength index (RSI) is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset. The RSI is displayed as an oscillator (a line graph that moves between two extremes) and can have a reading from 0 to 100. The indicator was originally developed by J. Welles Wilder and introduced in his seminal 1978 book, “New Concepts in Technical Trading Systems.”
As you can see in the previous chart, the RSI indicator can remain in “overbought” territory for extended periods while a stock is in an uptrend. The indicator can stay in “oversold” territory for a long time while a stock is in a downtrend. This can be confusing for new analysts, but learning to use the indicator within the context of the prevailing trend will clarify these issues.