The Relative Strength Index (RSI) is a well versed momentum based oscillator which is used to
measure the speed (velocity) as well as the change (magnitude) of directional price movements.
Essentially RSI, when graphed, provides a visual mean to monitor both the current, as well as
historical, strength and weakness of a particular market. The strength or weakness is based on
closing prices over the duration of a specified trading period creating a reliable metric of
price and momentum changes. Given the popularity of cash settled instruments (stock indexes) and
leveraged financial products (the entire field of derivatives); RSI has proven to be a viable
indicator of price movements.
J.Welles Wilder Jr. is the creator of the Relative Strength Index. A former Navy mechanic,
Wilder would later go on to a career as a mechanical engineer. After a few years of trading
commodities, Wilder focused his efforts on the study of technical analysis. In 1978 he published
New Concepts in Technical Trading Systems. This work featured the debut of his new momentum
oscillator, the Relative Strength Index, better known as RSI.
Over the years, RSI has remained quite popular and is now seen as one of the core, essential
tools used by technical analysts the world over. Some practitioners of RSI have gone on to
further build upon the work of Wilder. One rather notable example is James Cardwell who used RSI
for trend confirmation.
As previously mentioned, RSI is a momentum based oscillator. What this means is that as an
oscillator, this indicator operates within a band or a set range of numbers or parameters.
Specifically, RSI operates between a scale of 0 and 100. The closer RSI is to 0, the weaker the
momentum is for price movements. The opposite is also true. An RSI closer to 100 indicates a
period of stronger momentum.
- 14 days is likely the most popular period, however traders have been known to use a wide
variety of numbers of days.