What is RSI and why every trader needs it

June 6, 2026 · 4 min read

RSI measures the speed and magnitude of recent price changes to evaluate whether a stock is overbought or oversold. It ranges from 0 to 100. How to read RSI: Below 30 = Oversold (potential buy signal). The stock has been sold too aggressively and may bounce back. Above 70 = Overbought (potential sell signal). The stock has risen too fast and may pull back. Between 40-60 = Neutral territory. No strong signal. The RSI formula uses the average gains and losses over 14 periods. When a stock drops rapidly, RSI plunges. When it rises sharply, RSI spikes. Real example: In May 2026, BMW.DE's RSI dropped to 28 after a 12% selloff. Within 3 weeks, the stock rebounded 8%. Traders who bought the RSI dip captured that recovery. Common mistakes: Buying every stock with low RSI is dangerous. Some stocks are cheap for a reason. A company losing money might have RSI below 30 for months. Ignoring the trend is another trap. RSI below 30 in a strong downtrend can stay low for weeks. Always check if the stock is in an uptrend (above 200 SMA) before buying an RSI dip. Using RSI alone is insufficient. Always combine with other indicators like MACD, volume, and support/resistance levels. Pro tip: Our Swing Score combines RSI with 6 other indicators to filter out false signals. A stock with RSI below 30 AND a Swing Score above 6 is a much stronger buy signal than RSI alone.