RSI
Relative Strength Index — a momentum oscillator measuring the strength of gains against losses. Overbought depends on trend context, not on the number.
Definition
RSI (Relative Strength Index) is a momentum oscillator that compares the strength of gains and losses over a window (often 14). The “overbought/oversold” levels (70/30, for instance) depend on trend context — in a strong trend RSI can stay overbought for a long time without reversing.
Example
In an uptrend on the H1 chart you use RSI as a filter: you look for longs on pullbacks when RSI comes off its extreme while the HH/HL structure remains intact — instead of shorting every reading above 70.
Anti-example / common mistake
Automatically shorting when RSI is above 70, regardless of trend. That is the classic way to fight momentum. Optimising the RSI period for a single backtest is the second mistake.
Verifiable sources
RSI comes from J. Welles Wilder’s “New Concepts in Technical Trading Systems” (Trend Research, 1978) — that is where the original definition of the 14-period window and the formula can be found. Commercial write-ups (StockCharts.com, for example) add interpretation in the context of a trend. One caution: in Polish material RSI is sometimes rendered as a “relative strength indicator”, which should not be confused with Relative Strength — the comparison of the strength of two different instruments.