The RSI (Relative Strength Index) is a momentum indicator that shows how strongly a share has been rising or falling recently. It moves between 0 and 100 in a separate panel under the chart. In simple Urdu terms, it tells you whether buyers or sellers have had the upper hand, and whether a move may be getting zyada (overstretched).
How RSI is calculated, simply
RSI compares the size of recent up-moves with recent down-moves, usually over the last 14 candles. If most recent candles closed higher with big gains, RSI is high. If most closed lower with big losses, RSI is low. You do not need to calculate it yourself; every charting platform does it for you.
Overbought and oversold
- Above 70: often called overbought. The share has risen strongly and may be due for a pause or pullback.
- Below 30: often called oversold. The share has fallen strongly and may be due for a bounce.
- Around 50: momentum is neutral.
Important: overbought does not mean “sell now”, and oversold does not mean “buy now”. In a strong uptrend, RSI can stay above 70 for weeks while the price keeps rising. In a strong downtrend, it can stay below 30 while the price keeps falling.
RSI and the trend
A useful way to read RSI is together with the trend:
- In an uptrend, RSI often stays between about 40 and 80. A dip towards 40–50 can show a pullback within the trend.
- In a downtrend, RSI often stays between about 20 and 60. A rise towards 50–60 can show a bounce within the downtrend.
Divergence
Bearish divergence: the price makes a higher high, but RSI makes a lower high. The rise is losing momentum, and a reversal may follow.
Bullish divergence: the price makes a lower low, but RSI makes a higher low. Selling pressure is weakening.
Divergence is a warning, not a trigger. Wait for price to confirm, for example by breaking a trendline or forming a reversal candlestick pattern.
Common mistakes with RSI
- Selling every time RSI crosses 70 in a strong uptrend
- Using RSI alone, without looking at trend, support and resistance or volume
- Changing the settings repeatedly to fit past charts
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This article is for education only and is not investment advice. Trading shares involves risk, including the loss of capital.