J. Welles Wilder developed the Relative Strength Index (RSI) and it was published in his book, New Concepts in Technical Trading Systems in 1978. This book provides details on calculation, usage and signals for RSI and many of Wilder's other indicators including Average True Range, Parabolic SAR and ADX.

Even though the indicator is called the "Relative Strength Index", it does not measure relative strength in the traditional sense. RSI uses price data from one security to compare its gains and losses over a period of time, it is relative to its history, not another security.

RSI is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100.

Traditionally, and according to Wilder, RSI is considered overbought, bearish, when above 70 and oversold, bullish, when below 30.

Raising overbought to 80 or lowering oversold to 20 will reduce the number of overbought/oversold readings. Short-term traders sometimes use 2-period RSI to look for overbought readings above 80 and oversold readings below 20.

References

Colby and Meyers (1988). The Encyclopedia of Technical Market Indicators. Dow Jones-Irwin.

Wilder (1978). New Concepts in Technical Trading Systems. Trend Research