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Reversion Docs

RSI Overview

The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and magnitude of recent price changes on a 0-100 scale — providing clear overbought/oversold signals through fixed threshold levels (70/30) that help identify potential reversal points and momentum exhaustion.

Unlike percentage-based oscillators (ROC, PPO) that can reach any value, RSI normalizes momentum into a bounded range by comparing average gains to average losses over a lookback period. Values above 70 typically indicate overbought conditions, while values below 30 suggest oversold conditions.

How Relative Strength Index Works

Section titled “How Relative Strength Index Works”

Core Concept

Section titled “Core Concept”
  1. Calculate Price Changes: For each period, determine if close increased or decreased from previous close
  2. Separate Gains and Losses: Gains = positive changes, Losses = absolute value of negative changes
  3. Average with RMA: Apply RMA (exponential-weighted moving average) to gains and losses separately
  4. Calculate RS (Relative Strength): RS = Average Gain / Average Loss
  5. Transform to 0-100 Scale: RSI = 100 - [100 / (1 + RS)]
  6. Interpret Thresholds: RSI > 70 = overbought, RSI < 30 = oversold, RSI = 50 = neutral

Key Characteristics:

  • Bounded Range = Always oscillates between 0-100, unlike unbounded oscillators (MACD, ROC)
  • Standardized Thresholds = 70/30 levels provide universal overbought/oversold references across all assets
  • RMA Smoothing = Uses exponential weighting (RMA) rather than simple averages, making RSI responsive yet smooth
  • Dual RSI Capability = Can use signal line crossovers for additional timing signals
  • Mean Reversion Focus = Designed to identify extremes that tend to reverse

Visual Interpretation

Section titled “Visual Interpretation”

RSI Behavior:

  • RSI oscillates between 0-100 based on the ratio of average gains to average losses
  • When RSI crosses above 70, momentum is extremely bullish (overbought)
  • When RSI crosses below 30, momentum is extremely bearish (oversold)
  • RSI staying above 50 indicates bullish bias
  • RSI crossing 50 signals momentum shift

Trading Signals Available on Reversion

Section titled “Trading Signals Available on Reversion”

These are the signal names you select when configuring RSI in the algorithm builder or via the MCP agent:

SignalTriggers WhenTypical Use
rsi_above_thresholdRSI value rises above your threshold (e.g., 70)Detect overbought — short entry or long exit
rsi_below_thresholdRSI value falls below your threshold (e.g., 30)Detect oversold — long entry or short exit
rsi_above_signalLineRSI crosses above its signal line (smoothed RSI)Bullish momentum crossover
rsi_below_signalLineRSI crosses below its signal line (smoothed RSI)Bearish momentum crossunder

Display: Separate pane (not overlaid on price chart)

Category: Momentum

Threshold range: 0 – 100

Key Characteristics

Section titled “Key Characteristics”

What Relative Strength Index Does Well:

  • Universal Overbought/Oversold Levels: 70/30 thresholds work across all assets and timeframes
  • Early Reversal Detection: Extreme RSI values often precede price reversals
  • Trend Strength Measurement: RSI staying above/below 50 confirms trend direction
  • Signal Line Crossovers: Provide additional timing signals beyond threshold levels
  • Bounded Scale: 0-100 range prevents extreme outliers