While the market price represents the ultimate arbiter, publicly traded securities don’t run along perfectly linear trajectories. Even some of the most beaten-down enterprises may occasionally see their valuations rise, if only temporarily. To identify such contrarian opportunities, traders often turn to the relative strength index or RSI.
Representing one of the most common gauges within the discipline of technical analysis, the RSI measures the robustness of recent price action. This measurement is then used to determine the sentiment at the time for the asset, whether conditions suggest that it’s overbought or oversold. When the index rises above the 70 level, it’s considered overheated. Below 30, the asset may be oversold.
