A momentum ratio is not a valuation measure
In the usual Wilder calculation, average gains and average losses are smoothed over a chosen period, often 14 candles. RSI equals 100 minus 100 divided by one plus the ratio of average gain to average loss. Longer periods, shorter periods and different smoothing choices can change the result.
Strong advances can maintain elevated RSI readings across many completed candles. Selling solely because the reading first exceeds 70 assumes a reversal that the indicator has not demonstrated. Likewise, a low reading can persist during a decline. Overbought and oversold describe recent momentum, not a company being fundamentally expensive or cheap.
Why a reading of 75 does not predict tomorrow
Assume the smoothed average gain is 1.20 dollars and the smoothed average loss is 0.40 dollars. Their ratio is 3, so RSI = 100 − 100 / (1 + 3) = 75. If the next observed price advances while average gains remain dominant, RSI can stay elevated. Alternatively, price may pause sideways and allow momentum to cool without a large fall. The same initial reading is compatible with different subsequent paths.
Thresholds and divergences need context
A drop below 70 may reflect a slower rise rather than a downward trend. A lower RSI peak alongside a higher price peak warns that momentum differs, but does not guarantee reversal. Thin trading, gaps and inconsistent data adjustment can also affect the input changes. Comparing readings from different timeframes without noting their settings creates misleading precision.
Put price structure ahead of a label
On an available completed daily, weekly or monthly price chart, inspect whether meaningful peaks and troughs are still rising. If you calculate RSI separately, record its period, smoothing method and the candle when the reading became final. Compare the next price reaction with a predefined structural level. This article explains RSI; it does not claim that Student Wyckoff Pro includes an RSI tool.
Primary sources
Sources explain the mechanics and limitations; the editorial examples use invented numbers rather than market quotations.
Your next practical step
Use completed price structure to examine the context behind a momentum reading.
Open the first-chart instructions ↗