Relative Strength Index (RSI)

Developed by Welles Wilder, the relative strength index (RSI) is an indicator in the “oscillator” family designed to reflect shorter-term momentum. It ranges from zero to 100, with higher readings supposedly corresponding to overbought levels and low readings reflecting the opposite. The formula is:

RSI = 100 – (100/[1+RS])

Where

RS = relative strength = the average of the up closes over the calculation period (e.g., 10 bars, 14 bars) divided by the average of the down closes over the calculation period.

For example, when calculating a 10-day RSI, if six of the days closed higher than the previous day’s close, you would subtract the previous close from the current close for these days, add up the differences, and divide the result by 10 to get the up-close average. (Note that the sum is divided by the total number of days in the look-back period and not the number of up-closing days.)
For the four days that closed lower than the previous day’s close, you would subtract the current close from the previous low, add these differences, and divide by 10 to get the downclose average. If the up-close average was .8 and the down close average was .4, the relative strength over this period would be 2. The resulting RSI would be 100 - (100/[1+2]) = 100 - 33.3 = 66.67.