What it is
J. Welles Wilder introduced the RSI in 1978. It measures momentum: how strong recent up moves have been compared with recent down moves. It does not measure whether a price is cheap or expensive.
In ranges, 70 and 30 work as stretch markers where moves often pause. In strong trends RSI can stay above 70 or below 30 for a long time, so many traders use the 50 line and the RSI's own swings instead, along with divergence: price making a new high while RSI makes a lower high.
How it is calculated
For each candle, the gain is the rise in close from the previous candle (0 if it fell) and the loss is the fall (0 if it rose). Average gain and average loss use Wilder's smoothing over 14 candles: new average = (previous average x 13 + this candle's value) / 14. RS = average gain / average loss. RSI = 100 minus 100 / (1 + RS).
Settings
| Setting | Default | Range | What it changes |
|---|---|---|---|
| length | 14 | 2 to 200 | How many candles the gains and losses are smoothed over. Short lengths (2 to 7) reach the extremes often; longer lengths are calmer. |
How to read it
How to trade it
- 1
Trend pullback on a 15 minute gold chart: with price above the 50 EMA, wait for RSI to dip to 40 to 50 on a pullback.
- 2
Entry trigger: RSI turns back up above 50 and the candle closes above the previous candle's high. Enter on that close.
- 3
Stop below the pullback low, often 5 to 10 points on gold at 15 minutes.
- 4
Target 2 times the stop or the last swing high; trail the rest while RSI stays above 50.
- 5
Range turn on US30: in a flat market, buy a cross back above 30 at range support, stop below the low, target the middle of the range.
For a pullback long, a close below the pullback low or RSI falling back under 40 cancels the idea. For an oversold turn, a new low in price after the cross ends it.
On WickSpeak, the RSI writes a plain-English reading on the live candle: where it is, what it is doing now, how to trade it and what would prove it wrong. In Playbook you can test: crosses above a level, crosses below a level, is above or below a level, is between two levels, is rising, or is falling. Divergence is also a condition kind of its own in Playbook.
WickSpeak also has its own version, the WickSpeak RSI. The line is coloured by strength: faint when the reading is weak, glowing when it is strong, mint above its middle line (50) and pink below it. A cross of the middle line is marked only once the candle has closed, so a marker never vanishes after you have seen it. A gold marker shows a stretched reading, meaning the strongest few percent of its own range or past a fixed level. Divergences between price and the oscillator are drawn on both the chart and the indicator, and a chip shows the same reading on a higher timeframe. For the WickSpeak RSI the fixed stretch levels are 70 and 30.
Best markets and timeframes
Works on every market and timeframe. For intraday gold, US30 and NAS100, the 5 minute to 1 hour charts are most used; divergences carry more weight on 1 hour and above.
Common mistakes
- Selling just because RSI is above 70 in a strong uptrend.
- Trading every divergence; many fail until price itself confirms with a break.
- Cutting the length to 5 or 7 for more signals, which mostly adds noise.
Works well with
Questions traders ask
What are the best RSI settings?
14 is the standard and the one most traders watch. Shorter settings such as 7 or 9 react faster and reach 70 and 30 more often; very short ones like 2 are used for mean reversion systems. Test any change before using it.
Is RSI above 70 a sell signal?
Not on its own. It means momentum is strong; in a range that often marks a pause, but in a trend RSI can stay above 70 while price keeps rising. Wait for price to confirm, such as a break of a swing low.
What is RSI divergence?
Price makes a higher high while RSI makes a lower high (bearish), or price makes a lower low while RSI makes a higher low (bullish). It shows momentum fading, but needs a price trigger before it means anything.
Is RSI good for gold?
Yes, it is widely used on gold. Because gold trends strongly at times, the 50 line and pullbacks to 40 to 50 are often more useful than selling at 70.