The Relative Strength Index compares the magnitude of recent gains to recent losses and outputs a number between 0 and 100. It's calculated over a window (typically 14 periods): average the size of up-moves, average the size of down-moves, and turn the ratio into a bounded scale.

An RSI above 70 is traditionally considered "overbought," meaning the stock has been going up fast relative to its recent history, and the move might be exhausted. Below 30 is "oversold," meaning it's been beaten down and might be due for a bounce. These aren't guarantees; a stock can stay overbought for weeks during a strong rally. But RSI gives you a quick read on whether the current momentum is unusually one-sided.

RSI also reveals divergence. If a stock makes a new price high but RSI makes a lower high, momentum is weakening even though price is still rising. This "bearish divergence" often precedes a pullback. The reverse, where price makes a new low but RSI doesn't, can signal a bottom forming.