RSI: what “overbought” really means
Caliente Signals · Updated
RSI is one number between 0 and 100. It compares how much price has risen against how much it has fallen over the last N candles, with 14 the usual setting.
A high reading means the recent candles have been mostly up moves, and big ones. A low reading means the opposite. It measures how one-sided the recent move has been.
Overbought and oversold are misleading names
Readings above 70 are conventionally called overbought and below 30 oversold. Both names sound like forecasts, and the number underneath them is a measurement of what already happened.
The table below takes two occasions where RSI(14) stayed above 70 for about a month without once dipping back under, and shows what price did across the same days.
RSI(14) above 70 for a month, twice
Daily candles. Each run is an unbroken stretch where the reading never dropped back below 70.
| Pair | Days above 70 | Price across the run |
|---|---|---|
| ETH/EUR, from 12 Feb 2024 | 32 | +44.83% |
| TRX/USDC, Sep–Oct 2024 | 31 | +4.33% |
Binance daily candles, RSI(14) with Wilder's smoothing, closed candles only. ETH/EUR reached a peak reading of 85 during its run.
One of those came with a 45% climb. The other came with 4%. A reading above 70 was true throughout both, so on its own it did not separate them.
That is the useful thing to take from the name. A high reading tells you the move has been lopsided, which is worth knowing, and it is a description rather than a limit. Nothing stops the reading climbing further, and plenty of strategies pair it with a second condition for exactly that reason.
The honest description is narrower. RSI tells you the recent move has been lopsided. What that is worth is your call.
A level and a cross are different rules
RSI(14) is less than 30 is true on every candle the reading stays down there. RSI(14) crosses above 30 is true on exactly one candle, when it comes back up through the line.
The first describes a condition of the market. The second describes the market doing something. The engine treats them differently.
One practical note. RSI is built from the changes between one close and the next, so it needs one more candle than its period before it can produce a value at all. RSI(14) needs 15 closes to give you its first reading. Until then a condition resting on it is false, never true.
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Caliente Signals is an alert tool, not an investment advisor. Nothing on this page is financial advice, and past performance is not indicative of future results.