The Relative Strength Index boils recent price action into a single number from 0 to 100. It compares the size of recent up-days to recent down-days (classically over 14 days): lots of strong up-days push it toward 100, lots of down-days toward 0. It's a momentum oscillator — it swings within a fixed range instead of trending off the chart.
Overbought and oversold
By convention a reading above 70 is called overbought and below 30 oversold. The words are suggestive but misleading: a strong stock can sit "overbought" for months while it keeps rising. The level is context, not a trigger — which is why "it's oversold" is not, by itself, a reason to do anything.
Where it connects here
The kernel of truth is the short-term mean-reversion tendency: over a few days, extreme moves partly snap back. Our Short-Term Mean Reversion strategy harvests that idea systematically (and claims no edge beyond a diversifier). Note we use a plain 5-day-loser rule, not RSI thresholds — because a clean, testable rule beats a tunable indicator you can fit to any chart. See how to read a backtest.
Educational material — not investment advice.