If you’re new to stock trading or technical analysis, chances are you’ve heard of RSI, or the Relative Strength Index. It’s one of the most popular technical indicators used by traders worldwide.

But what exactly is RSI? And more importantly, how does RSI help in trading?

In this guide, we explain:

  • What RSI means in the stock market
  • How to read RSI levels
  • How RSI is used in trading strategies

This article is designed as a beginner’s guide to help you understand the basics before you explore advanced RSI strategies.

What is RSI? (Relative Strength Index Meaning)

RSI, or Relative Strength Index, is a momentum indicator used in technical analysis. RSI measures the speed and strength of recent price movements of a stock or index and presents it as a value between 0 and 100.

In simple terms:

  • If the RSI value is high, the stock’s recent price gains are stronger.
  • If the RSI value is low, recent price losses dominate.

Traders use RSI to identify whether a stock is potentially overbought or oversold, helping them time their trades.

How to Read RSI Indicator Levels

Here’s how to interpret RSI values in trading:

  • RSI above 70 = Overbought
     (Price may have risen too fast and could correct.)
  • RSI below 30 = Oversold
     (Price may have fallen too fast and could bounce back.)
  • RSI near 50 = Neutral zone.

This makes RSI a simple tool for understanding short-term market momentum.

How is RSI Calculated?

RSI compares recent gains and losses over a fixed period (commonly 14 days). The formula itself is complex, but modern trading platforms like Share.Market automatically calculate and plot RSI for you on charts.

All you need to focus on is the RSI number and what it signals.

RSI Trading Strategies: How Traders Use RSI in Markets

1. Reversal Strategy using RSI 30-70 Levels

  • Buy when RSI moves above 30 (stock is recovering from oversold).
  • Sell when RSI drops below 70 (stock may fall after being overbought).

This method aims to catch price reversals.

2. Trend-Following Strategy using RSI 50 Level

  • Buy when RSI crosses above 50.
  • Sell when RSI drops below 50.

This technique helps capture ongoing trends rather than reversals.

3. RSI EMA Cross Strategy

Another popular approach is to compare RSI with its Exponential Moving Average (EMA):

  • Buy when RSI crosses above its EMA.
  • Sell when RSI falls below its EMA.

This adds a smoothing effect to RSI and can help identify momentum shifts more clearly.

Important RSI Terms You Should Know

  • RSI Period: Number of days used to calculate RSI (default is 14 days).
  • Overbought and Oversold: Conditions based on extreme RSI levels signaling potential reversals.

EMA (Exponential Moving Average): A faster-reacting average applied to RSI for smoother signals.

Is RSI Indicator Reliable for Trading?

RSI is popular because it’s simple and easy to understand. However, like any trading tool, RSI alone doesn’t guarantee profits. Its effectiveness depends on:

  • Which RSI strategy you use (30-70, 50 cross, or EMA cross)
  • Your trading style (long-term vs short-term)
  • Market conditions

Many traders combine RSI with other indicators for better results.

Conclusion: Learn RSI Basics Before Trying Strategies

If you’re starting with technical analysis, understanding RSI meaning and RSI strategies can help you make more informed trading decisions.

In our next article, we’ll move beyond theory. Using 25 years of backtested data on Indian stock indices, we’ll reveal how different RSI strategies actually perform in real markets—and whether RSI can truly help traders make money.

Disclaimer and Disclosure 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing. Registration granted by SEBI, enlistment as Research Analyst with Exchange and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Kindly refer to  https://share.market/ for more details.Investments in WealthBaskets are subject to the Terms of Service. All investors are advised to conduct their own independent research into investment strategies before making an investment decision. Mutual Fund investments are subject to market risks, read all scheme related documents carefully. PPWB acts as a distributor of mutual funds and it is not an exchange traded product. PPWB acts as a distributor of mutual funds and WealthBaskets and it is not an exchange traded product. Disputes with respect to the distribution activity of Mutual Funds and WealthBaskets will not have access to Exchange investor redressal or Arbitration mechanism. The securities are quoted as an example and not as a recommendation. This is for informational purposes and should not be considered as recommendations.

PhonePe Wealth Broking Private Limited is a member of NSE & BSE with SEBI Regn. No.: INZ000302639, Depository Participant of CDSL Depository with SEBI Regn. No.: IN-DP-696-2022, Research Analyst with SEBI Regn No: INH000013387, BSE RA Enlistment Number: 5887 and Mutual Fund distributor with AMFI Registration No: ARN- 187821. Member ID: BSE- 6756, NSE- 90226. Registered office – 2, Floor 3, Wing A, Block A, Salarpuria Softzone, Service Road, Green Glen Layout, Bellandur, Bengaluru South, Bengaluru, Karnataka – 560103, INDIA. CIN: U65990KA2021PTC146954