RSI Scale Explained: The 0-100 Range and Formula
Learn the RSI formula and how the indicator's 0-100 scale is calculated, verified against standard technical analysis sources.
- 7 min read
- For beginners
- Educational
- Lezione 2 di 6
This lesson explains the RSI formula and its fixed 0–100 scale, providing the foundation for the overbought/oversold and divergence concepts covered in the following lessons.
This formula has been verified against multiple technical analysis education sources, including the indicator's original developer's methodology.
The RSI Formula
RSI is calculated as: RSI = 100 − [100 ÷ (1 + RS)], where RS (Relative Strength) is the average gain over a specified period divided by the average loss over that same period. The standard, most commonly used period is 14 (whether 14 days, 14 hours, or 14 of whatever timeframe unit is being analyzed).
How This Produces a 0–100 Scale
This formula is mathematically constructed to always produce a value between 0 and 100, regardless of the instrument or timeframe being analyzed. This fixed, bounded scale is a distinguishing feature compared to MACD (covered in the previous unit), which does not have upper or lower limits.
What Higher and Lower RSI Values Represent
A higher RSI value reflects a period where average gains have been larger relative to average losses, generally interpreted as reflecting stronger recent upward momentum. A lower RSI value reflects the opposite — average losses larger relative to average gains, reflecting stronger recent downward momentum. A reading near 50 is generally interpreted as reflecting more balanced conditions, without strong momentum in either direction.
Adjustable Period Length
While 14 is the standard, widely used period, shorter periods (such as 7 or 9) can be used for increased sensitivity, and longer periods for reduced sensitivity, similar to the general period-length considerations covered in the Moving Averages unit.
Summary
RSI is calculated as 100 minus [100 divided by (1 plus the ratio of average gains to average losses)], producing a fixed 0–100 scale, typically using a 14-period setting. Higher values reflect stronger recent upward momentum and lower values reflect stronger downward momentum, with this bounded scale distinguishing RSI from the unbounded MACD covered in the previous unit.
Frequently Asked Questions
RSI = 100 − [100 ÷ (1 + RS)], where RS is the average gain divided by the average loss over a specified period, typically 14.
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