RSI is the best-known momentum oscillator. It measures the speed and size of recent price changes on a 0–100 scale, comparing the average size of up-moves to down-moves over a lookback (classically 14 periods). In short: how strong has buying been relative to selling lately?
Overbought and oversold
The traditional levels are 70 and 30. Above 70 the market is 'overbought' — buying has been intense and a pause or pullback is more likely. Below 30 it is 'oversold'. But read those words carefully: overbought means strong, not 'about to fall'. In a powerful uptrend RSI can sit above 70 for a long time while price keeps rising.
The classic mistake
The most common error is shorting simply because RSI is over 70 (or buying because it is under 30). In a trend that is a fast way to lose money fighting momentum. RSI extremes are best used as reversal signals only in ranging markets, or as confirmation when they line up with a level and a price-action signal — never as a standalone trigger in a strong trend.
Better uses
More reliable than the raw levels: the 50 line (RSI above 50 = bullish momentum bias, below = bearish), and divergence (next lesson). Some traders also shift the bands in trends — using 40 as support in an uptrend rather than 30. RSI is a momentum context tool; its value comes from how you frame it, not from the 70/30 lines alone.