What it calculates
Over the last fourteen candles by default, RSI takes the average up-move and the average down-move and turns their ratio into a number between 0 and 100. Fifty means gains and losses have been about equal. Seventy means recent candles have been mostly and strongly up.
Overbought does not mean sell
This is the single most expensive misreading in retail trading. RSI above 70 says the market has been rising hard. In a strong trend it can stay above 70 for weeks, and every one of those days somebody sold it because the indicator was "overbought". Overbought is a description of the past, not a prediction of the future.
Where the levels do work
In a market that is ranging rather than trending, price returning from an extreme is common, and 30 and 70 mark those extremes usefully. The condition is the range. Applied to a trend, the same reading is a reason to stay out of the way, not a reason to trade against it.
Divergence, stated honestly
Divergence is when price makes a lower low but RSI makes a higher low, or the reverse at highs. It says the second push had less momentum behind it than the first. That is a real observation and worth noticing. It is not a signal on its own: momentum can fade for a long time before price turns, and divergence appears repeatedly in trends that keep going.
Why it needs something else
On its own RSI has no idea where price is. Paired with a level, a structure break or a moving average, it answers a different and better question: at a place that already matters, is the push into it strong or tired?
In short
| Measures | Momentum, not value |
|---|---|
| Default length | 14 candles |
| Above 70 | Has been rising hard — not a sell signal |
| Below 30 | Has been falling hard — not a buy signal |
| Divergence | Momentum faded; timing unknown |
Common questions
Should I sell when RSI is above 70?
Not by itself. In a trend RSI holds above 70 for long stretches, and selling each time is selling into strength. Treat it as a description of what has happened.
Is divergence reliable?
It is a real observation that momentum weakened, and it is not a timing tool. Divergence can persist through several more pushes. Traders who use it wait for something else — a level, a structure break, a candle close — before acting.
What RSI length should I use?
Fourteen is the default and is watched widely. A shorter length gives more signals and more noise. Changing the length until the past looks profitable is fitting the indicator to history.
Trading forex and CFDs on margin carries a high level of risk. Most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade.