How to Use RSI for Swing Trading (The Smart Way)
RSI is one of the most popular indicators in swing trading.
For swing traders - who aim to ride stock and ETF prices higher over days, weeks, or even months - timing is everything.
Enter the Relative Strength Index (RSI) - a powerhouse indicator that tells you about the power of a stock's uptrend in a single number.
In this comprehensive guide, we’ll:
- Unpack what RSI is
- Explain the nerdy math behind RSI (you don't have to memorize it)(with a deep dive into its math!)
- Dive into its fascinating history
- Show you how to use it the smart way for swing trading
- Weigh its pros and cons
- Spotlight famous traders who’ve used RSI
Whether you’re new to the game or a seasoned swing trading pro, you're bound to find a way to integrate RSI into your trading workflow.
What is RSI?
Think of RSI as a speedometer for stock prices—it tells you how fast and in what direction a stock is moving. The higher the RSI, the faster the stock is going.
The Relative Strength Index, or RSI, is a momentum oscillator that measures the speed and change of price movements on a scale from 0 to 100. RSI can't be negative and it can't go over 100.
RSI is typically calculated over a 14-day period, though that can be adjusted in your trading or charting platform.
RSI compares average gains to average losses to signal whether a stock is overbought or oversold.
Traditionally, stocks have been considered overbought when RSI is over 70. And considered oversold below 30. But as we'll explain below, that's a very limiting way to look at RSI, especially when you consider fast-moving momentum stocks.
In this article, you'll see charts with 2 sections -- the stock price on top, and RSI on bottom:
You'll quickly notice that rising stocks have a high RSI.
Take Monster Beverage (MNST). It had a nice uptrend, so it's easy to see why the RSI was over 70:
And on the flip side, check out this chart of MongoDB (MDB):
The stock was collapsing, and so the RSI was just 20.
So always remember these 2 stupid-simple rules:
- Uptrending stocks have a high RSI
- Downtrending stocks have a low RSI
Who Invented RSI? And When Was It Invented?
RSI was invented by J. Welles Wilder Jr., a mechanical engineer turned trading guru.
In the 1970s, Wilder grew obsessed with predicting market movements.
Working from his kitchen table, he worked on formulas that would change technical analysis forever.
In 1978, he unveiled RSI in his book "New Concepts in Technical Trading Systems", a trader’s bible.
This book was originally designed for commodities like gold and oil. But the RSI concept caught on with stock traders when computers made charting accessible.
RSI was one of the first indicators baked into trading software in the 1980s, cementing its place in history. Today, it’s a default on platforms like TrendSpider, TradingView, and Koyfin - a legacy Wilder probably never imagined.
Search "RSI" on Twitter/X and you'll see thousands upon thousands of posts mentioning it.
The Math Behind RSI: A Deep Dive
Want to really understand RSI? Let’s roll up our sleeves and dissect the exact math. Feel free to ignore this section if you get bored easily. You don't need to know the math to use RSI effectively in your swing trading.
RSI’s calculation has two phases - the initial setup over the first 14 periods, and the ongoing update using smoothing. Here’s the full breakdown.
Step 1: Initial RSI Calculation (First 14 Days)
Gather Price Changes: Take 14 days of closing prices and compute the daily change (today’s close minus yesterday’s close).
Gains are positive changes (e.g., $50 to $52 = +$2).
Losses are negative changes, recorded as absolute values (e.g., $52 to $51 = -$1 becomes $1).
Separate Gains and Losses: Sum all gains and all losses separately over the 14 days.
Calculate Average Gain and Loss:
Average Gain = (Sum of gains) ÷ 14.
Average Loss = (Sum of losses) ÷ 14.
Compute Relative Strength (RS):
RS = Average Gain ÷ Average Loss.
Calculate RSI:
RSI = 100 - (100 ÷ (1 + RS)).
Working Example: Let’s use fictional daily closes for a stock over 14 days:
- Day 1: $50
- Day 2: $52 (+2)
- Day 3: $51 (-1)
- Day 4: $53 (+2)
- Day 5: $54 (+1
- Day 6: $53 (-1)
- Day 7: $55 (+2)
- Day 8: $56 (+1)
- Day 9: $55 (-1)
- Day 10: $57 (+2)
- Day 11: $58 (+1)
- Day 12: $57 (-1)
- Day 13: $59 (+2)
- Day 14: $60 (+1).
Gains: +2, +2, +1, +2, +1, +2, +1, +2, +1 = $14 total.
Losses: -1, -1, -1, -1 = $4 total (absolute value).
Average Gain = $14 ÷ 14 = $1.
Average Loss = $4 ÷ 14 = $0.286.
RS = $1 ÷ $0.286 = 3.496.
RSI = 100 - (100 ÷ (1 + 3.496)) = 100 - (100 ÷ 4.496) = 100 - 22.24 = 77.76.
This RSI of 77.76 flags the stock as potentially overbought because the gains are dominating the losses.
Step 2: Ongoing Updates (After Day 14)
Recalculating RSI from scratch every day would get annoying fast, so RSI uses a smoothing method (like an exponential moving average) starting on day 15:
New Average Gain = [(Previous Average Gain × 13) + Today’s Gain] ÷ 14.
New Average Loss = [(Previous Average Loss × 13) + Today’s Loss] ÷ 14.
Then recompute RS and RSI as above.
Example Continued: Day 15’s close is $59 (-1).
Today’s Gain = 0 (no gain), Today’s Loss = $1.
New Average Gain = [($1 × 13) + 0] ÷ 14 = $13 ÷ 14 = $0.929.
New Average Loss = [($0.286 × 13) + 1] ÷ 14 = ($3.718 + 1) ÷ 14 = $4.718 ÷ 14 = $0.337.
RS = $0.929 ÷ $0.337 = 2.757.
RSI = 100 - (100 ÷ (1 + 2.757)) = 100 - (100 ÷ 3.757) = 100 - 26.62 = 73.38.
Now RSI drops to 73.38—still overbought, but cooling off.
Nuances and Weird Scenarios with RSI
Why does RSI use 14 days?
It is a bit arbitrary, right.
Wilder picked 14 as a middle ground. He considered 14 long enough to smooth noise and short enough to catch swings. Shorter periods (e.g., 7) amplify the sensitivity of RSI while longer ones (e.g., 21) dull it.
Of course, you can choose a different number, and you can also pick different numbers for the Upper and Lower RSI bands:
Then there are odd edge cases. If a stock is up 14 days in a row, RS can be infinite, and RSI would be 100. If a stock was down for 14 days in a row, RSI would be 0. These are rare, but they can happen.
The smoothing keeps RSI dynamic, reflecting recent momentum without overreacting to one wild day.
How to Use RSI in Swing Trading
Swing trading is about catching short-term price swings. So let's use RSI to do just that.
Set Up RSI
Start with the standard 14-period RSI for balance. That's the default on every charting system, but double-check just in case.
Want faster signals? Try a 7-period RSI for choppier markets. Modern charting platforms let you tweak this easily.
Buying with RSI
Looking for deeply oversold stocks? Start by scanning for stocks with an RSI hitting the 30 area. This can indicate panic selling. Of course, it would be wise to use other technical analysis indicators like moving averages or MACD to confirm the potential for a move.
Take Robinhood (HOOD) in March 2025.
RSI hit 30 to mark a bottom in HOOD. The stock then rallied from $35 to $48+:
Selling with RSI
And RSI above 70 can mean a stock is topping out. In July of 2024, Microsoft's (MSFT) RSI went over 75. That marked a peak in the stock, and it fell from $465 to $383.
As on the buy side, it is wise to look for confirmation using other technical analysis trading indicators.
We will discuss below how these 70 and 30 numbers are not perfectly reliable.
Finding Divergences with RSI
A Bullish divergence (lower low stock price with a higher low in RSI) may signal fading selling pressure.
A Bearish divergence (higher high stock price with a lower high in RSI) can flags weakening momentum.
Watch for these scenarios on charts.
Pros and Cons of Using RSI
Like very other trading indicator on planet Earth, RSI has strengths —and flaws.
Pros of RSI
Simple: RSI is very easy to understand, even for beginning swing traders
FREE: You can find it on virtually every free trading or charting platform in existence
Versatile: Works across stocks, forex, crypto—any swinging market.
Gives Early Warnings: RSI can help you catch reversals before price screams it.
Cons of RSI
Lagging Nature: It’s past-focused—a rearview mirror, not a crystal ball.
Context Dependency: Choppy markets turn it into a whipsaw machine.
False Signals: RSI can linger above 70 in bull runs, tricking early sellers.
Popular Criticisms of RSI
Some traders over-rely on RSI, ignoring broader trends. The 70/30 levels outlined by Wilder are arbitrary. And in strongly trending markets, you will find that many momentum stocks will hit an RSI of 70 and go straight to 80 or even 90 in extreme cases.
Do you remember they heyday of Super Micro (SMCI) in early 2024?
Its RSI hit 70, meaning it was overbought according to traditional views of RSI.
But its RSI went to 95+ as the stock more than tripled.
So in some cases, RSI going over 70 might be a buy signal!
Plus the 14-period default sparks debate.
To some people, it's too slow. For others, it's too noisy.
Famous Traders Who Use RSI
RSI is used by T3 contributors like David Prince of the Inner Circle Virtual Trading Floor®. and JR Romero of Momentum Express.
And RSI is widely used by customers of our live trading rooms. when discussing stocks like Apple (AAPL) and Tesla (TSLA).
It's also been used by countless famous trading luminaries including:
Let’s start with the man who created RSI. Wilder wasn’t just another numbers geek. He was a real-deal commodities trader with a background in mechanical engineering. In his seminal book, "New Concepts in Technical Trading Systems (1978)", he introduced RSI alongside other indicators like the Average True Range (ATR) and Parabolic SAR. While he wasn't known for his stock trading, Wilder's influence on stock trading through RSI is undeniable—many traders credit his work as a foundation for their own technical strategies.
Legendary trader and author Larry Williams is famous for turning $10,000 into over $1.1 million in the 1987 World Cup Trading Championship—a feat that cemented his reputation. Williams has openly discussed using momentum indicators like RSI in his trading. In his book Long-Term Secrets to Short-Term Trading, he emphasizes short-term market timing, often combining RSI with other tools like moving averages or his own “Williams %R” indicator (a cousin of RSI). For instance, he might use RSI to spot divergences—say, when a stock like IBM makes a lower low but RSI forms a higher low, signaling a potential reversal. Williams’ approach is absolutely not "all RSI, all the time" but he uses it to confirm entry and exit points in fast-moving markets.
Linda Bradford Raschke, a highly respected trader and former floor trader, is known for her technical analysis prowess and adaptability. Her first claim to fame may have been her inclusing in Jack Schwager’s Market Wizards series. She’s traded everything from stocks to futures with a focus on short-term strategies. Raschke has praised RSI for its ability to highlight momentum shifts and overextended conditions. In her book "Trading Sardines," she describes using RSI alongside price patterns. So like other experts, she is not an "RSI isolationist." It's merely on tool in the box.
Billionaire hedge fund manager Paul Tudor Jones is perhaps best known for for predicting the 1987 stock market crash. While he’s more macro-focused, relying on fundamentals and market sentiment, he also uses technicals. Jones has reportedly used momentum indicators like RSI and MACD to time trades, especially in equities and futures.
Conclusion
RSI is a valuable trading indicator because it can give you an instead read on a stock or ETF's monentum. And of course, capturing momentum is what swing trading is all about. However, like all other indicators, it is not the be all, end all. It's simply one valuable took.
We suggest you look at your 10 favorite stocks - and determine how you could use RSI to understand those stocks' trends.
How to Learn About Moving Averages
If you’d like to get a better understanding of how moving averages can be used to find winning trade ideas, check out Scott Redler’s free eBook “The Ultimate Guide to Moving Averages.”
