The Relative Strength Index (RSI) is one of the most widely used momentum oscillators in technical analysis. Here's a general overview of what it measures and why it's relevant to screening.
What RSI Measures
RSI quantifies the speed and magnitude of recent price changes on a scale of 0 to 100. It compares the average gain to the average loss over a lookback period to assess whether buying or selling pressure has been dominant.
General Interpretation
Most traders consider RSI readings at the extremes of the scale to indicate potential momentum conditions. Low readings suggest selling pressure has been dominant, while high readings suggest buying pressure. The neutral zone sits in the middle.
SmallCapData uses a customised RSI implementation with proprietary smoothing and threshold adjustments tuned specifically for ASX small-cap behaviour, which can differ materially from large-cap or US equity markets.
Role in the Screener
RSI is one of several momentum indicators that feed into the technical dimension. It's most valuable as a confirmation layer — supporting or contradicting signals from other indicators rather than operating in isolation.
The screener doesn't rely on RSI alone for any screening decision. Its contribution is weighted alongside trend, volatility, and volume indicators in a way that adapts to market conditions.
RSI is a mathematical calculation, not a prediction tool. An extreme RSI reading does not guarantee a reversal. Price can remain in extreme territory for extended periods, particularly in trending small-cap stocks.