The Wilder's Relative Strength Index (RSI) is a rate of change oscillator developed by J. Welles Wilder, Jr. It essentially compares the price of a stock to itself. It does NOT compare the relative performance of one stock (or market average) to another. Use this indicator to spot positive and negative divergences with price. It may also be used to determine if a stock or index has reached an overbought or oversold condition.
A reading of 70% or higher is generally an overbought position. Conversely, values near the 30% level should be considered an indication the situation has become oversold. If used as an overbought/oversold indicator, it is important to first determine whether a definable trend exists. This is best determined by using another technical indicator such as price moving averages or trendlines. After the direction of a primary trend has been successfully identified, use Wilder's RSI to trade strictly with the trend.