What is RSI? A Plain English Guide for Beginners

You've probably seen RSI mentioned in trading discussions, YouTube videos, or stock analysis tools. Everyone talks about "overbought" and "oversold" like it's obvious what that means.

But what actually is RSI? And more importantly, should you care?

Let's break it down without the jargon.

RSI in One Sentence

RSI (Relative Strength Index) measures how fast a stock's price has been moving up or down recently, on a scale of 0 to 100.

That's it. It's a momentum indicator that tells you whether a stock has been on a hot streak (lots of up days) or a cold streak (lots of down days).

The Two Numbers That Matter

RSI gives you a number between 0 and 100. Here's what traders watch for:

RSI Level	What It Means	Common Interpretation
Above 70	Overbought	Stock may have run up too fast, could pull back
Below 30	Oversold	Stock may have dropped too fast, could bounce
40-60	Neutral zone	No strong signal either way

"Overbought" Doesn't Mean "Sell Now"

This is where beginners get tripped up.

Overbought (RSI above 70) doesn't mean the stock is about to crash. It means the stock has had a lot of recent buying pressure. Strong stocks can stay overbought for weeks during a rally.

Think of it like a runner who's been sprinting. They might need to catch their breath soon. But a world-class athlete can sprint longer than you'd expect.

"Oversold" Doesn't Mean "Buy Now"

Same logic applies. Oversold (RSI below 30) means heavy selling pressure recently. But a stock in free-fall can stay oversold for a long time.

A falling knife is still a knife.

A Real Example: How RSI Actually Looks

Let's say you're watching NVDA and see:

RSI: 75 (overbought territory)
Stock is up 15% in two weeks
Volume is strong

What does this tell you?

It tells you NVDA has momentum. Buyers have been in control. But it's running hot, so:

If you're already in, maybe tighten your stop loss
If you're looking to buy, you might wait for a pullback to RSI ~50
If you're day trading, watch for signs of exhaustion

RSI doesn't tell you what to do. It tells you where you are in the stock's recent momentum cycle.

When RSI Actually Works Best

RSI shines in certain situations:

1. Range-Bound Markets

When a stock is trading sideways between support and resistance, RSI is gold. Buy near RSI 30, sell near RSI 70. Rinse and repeat.

2. Finding Pullback Entries

You like AAPL long-term. It's in an uptrend. But you don't want to chase. Wait for RSI to dip to 40-50 for a better entry.

3. Spotting Divergence

This is more advanced, but powerful:

Stock makes a new high, but RSI makes a lower high = bearish divergence (momentum fading)
Stock makes a new low, but RSI makes a higher low = bullish divergence (selling exhausted)

Divergence often signals a trend reversal before the price shows it.

When RSI Fails

RSI has blind spots:

Strong Trends

In a strong uptrend, RSI can stay above 70 for weeks. Selling just because RSI hit 70 means missing the best part of the rally.

News Events

Earnings, FDA approvals, Fed decisions - these move stocks regardless of RSI. A stock can be "overbought" at RSI 80 and gap up another 20% on news.

Low-Volume Stocks

RSI on a thinly traded stock is noisy and unreliable. Stick to liquid names.

How to Use RSI Without Overthinking

Here's a simple framework:

Check the trend first - Is the stock generally going up, down, or sideways?
Use RSI as a timing tool - Not a decision maker, but a timing helper
Combine with other signals - RSI + VWAP + volume = stronger signal than RSI alone
Don't trade RSI in isolation - "RSI is oversold" is not a complete trade thesis

RSI Settings: The 14-Period Default

Most platforms use 14 periods as the default RSI setting. This means it looks at the last 14 candles (days on a daily chart, minutes on an intraday chart).

Shorter period (7-9): More sensitive, more signals, more noise
Longer period (21-25): Smoother, fewer signals, catches bigger moves

For most beginners, the default 14 works fine. Don't overthink it.

Setting RSI Alerts

Instead of staring at charts all day waiting for RSI to hit your target, set alerts.

With StockGenie, you can simply say:

"Alert me when AAPL RSI goes below 30"
"Tell me if NVDA becomes overbought"

The AI understands what you mean and sets up the right alert. No need to manually configure indicator settings.

Quick Reference Cheat Sheet

Situation	RSI Reading	What to Consider
Looking to buy an uptrending stock	Wait for RSI 40-50	Better entry on pullback
Already long, stock running hot	RSI above 70	Tighten stop, consider trimming
Stock crashed, looking for bounce	RSI below 30	Watch for reversal candle + volume
Day trading	RSI extremes (above 80 or below 20)	Short-term mean reversion plays
Swing trading	RSI divergence	Early trend reversal signal

The Bottom Line

RSI is one of the most popular indicators for a reason - it's simple to understand and genuinely useful when applied correctly.

But remember:

It's a tool, not a crystal ball
It works best combined with other analysis
Context matters more than the number itself

Start by just watching RSI on stocks you follow. Notice how it moves. See when it gives good signals and when it fails. That observation is worth more than any article.

Want to set RSI alerts without configuring anything? Try StockGenie - just tell the AI what you're looking for and it handles the rest.