What is relative strength index?

What it means

The calculation compares the size of recent up moves against recent down moves and normalises the result between 0 and 100. It is a momentum measure, not a valuation one — a high reading means price has been rising strongly, which is a different statement from "price is too high".

Why it matters

The conventional interpretation inverts in a trending market and this is where most RSI money is lost. A strong uptrend holds RSI above 70 for extended periods, so selling every overbought reading means selling into strength repeatedly. The indicator is not failing; it is being asked a question it does not answer.

What this changes in practice

Used as a filter rather than a signal it is more defensible: requiring RSI to be out of the extreme before taking a mean-reversion trade removes the worst entries. Notably, our best-performing mean-reversion strategy, VWAP-MEAN-REV, deliberately does not require an oscillator extreme — and a large part of why it works is that it actually fires when the RSI-gated versions do not.