RSI (Relative Strength Index)
A 0–100 oscillator that flags when a stock is overbought or oversold, computed from recent gains vs losses.
Definition
RSI was developed by J. Welles Wilder Jr. in 1978 (New Concepts in Technical Trading Systems). It's a bounded oscillator that ranges from 0 to 100 and measures the magnitude of recent gains relative to recent losses over a lookback window — usually 14 trading days.
The conventional reading is that RSI above 70 indicates the stock is overbought (a pullback may be coming), while RSI below 30 indicates oversold (a rebound may be coming). Both thresholds are heuristics, not rules; strong trends can hold RSI above 70 or below 30 for weeks.
RSI matters in quant scoring because it captures something different than raw trailing return. A stock can be up 30% over twelve months on smooth steady gains (healthy) or on a vertical late-stage spike (overbought). Trailing return alone treats both the same; RSI separates them.
Formula
RSI = 100 − 100 ÷ (1 + RS), where RS = avg gain ÷ avg loss over N daysDefault lookback is N = 14 trading days. avg gain and avg loss are computed as exponential moving averages of up-days and down-days respectively.
How QScoring uses it
The momentum category includes RSI(14) as one of five inputs. Unlike the trailing-return metrics, RSI uses a non-monotonic scoring curve: low RSI scores well (oversold rebound potential), mid-high RSI also scores well (healthy momentum), but extreme high RSI scores down (overbought risk). See the momentum section.