Glossary
RSI (Relative Strength Index)
Wilder's momentum oscillator, scaled from 0 to 100 and usually calculated over 14 periods. It compares average gains with average losses.
The RSI (Relative Strength Index), introduced by J. Welles Wilder in 1978, compares recent gains with recent losses. RS is the average gain divided by the average loss over 14 periods, each smoothed the Wilder way: new average = (previous average × 13 + current value) ÷ 14. Then RSI = 100 − 100 ÷ (1 + RS). Readings above 70 are commonly called overbought and below 30 oversold.
Example
Over the last 14 hours of gold, the average hourly gain is 1.20 USD and the average hourly loss 0.80 USD. RS = 1.20 ÷ 0.80 = 1.5, so RSI = 100 − 100 ÷ 2.5 = 60. In a strong rally RSI can stay above 70 for a long time without a reversal.
Why it matters
"Overbought" describes a past move; it is not a sell signal. In our lab, RSI rules on gold, alone and combined with other indicators, did not leave a positive result after costs.