RSI (Relative Strength Index) is a momentum oscillator that measures the speed and magnitude of price changes, oscillating between 0 and 100. Developed by J. Welles Wilder, RSI readings above 70 typically indicate overbought conditions while readings below 30 suggest oversold conditions. RSI helps identify potential reversal points and trend strength.

RSI analysis includes overbought/oversold signals, divergences between price and RSI movements, and centerline crossovers around the 50 level. The indicator works best in ranging markets but can remain at extreme levels during strong trends. Understanding RSI characteristics helps optimize timing for entry and exit decisions.

Real-world example: EUR/USD shows RSI at 25 after a significant decline, indicating oversold conditions that often precede short-term bounces, prompting traders to look for buying opportunities or signs of trend reversal.