# Relative Strength Index (RSI)

### Definition

RSI is a technical metric that measures momentum and helps indicate if an equity is overbought or oversold.

### Calculation

To calculate RSI two equations need to be calculated. In order to calculate the RSI you must first solve for relative strength.

Relative Strength (RS)= Average of "N" day's closes up/ Average of 'N' day's closes down

Now that we have the Relative Strength calculated we now add it to the following equation to calculate RSI

RSI= 100 - (100/1+RS)

### Why is it important?

It is said that when a stock has an RSI that is less than 30% it is considered oversold, and if it has an RSI greater than 70% it is considered overbought.

When a company is considered oversold it means that the a stock is potentially trading lower in price and could experience an increase in stock price.

When a stock is overbought means that the stock has experienced a consistent upward price trend without experiencing any significant pullback or dip in price and could indicate a possible price correction in the near term.

Financial Glossary Reference