"Overbought" means that buying has pushed a price up quickly enough that a momentum indicator reaches an extreme reading. The usual indicator is the Relative Strength Index (RSI). J. Welles Wilder, who created RSI, treated readings above 70 as overbought. Some analysts use a stricter line of 80. An overbought reading describes how strong recent buying was. It does not forecast a fall: prices can stay overbought for a long time in a strong uptrend.
What RSI measures
Wilder introduced RSI in his 1978 book New Concepts in Technical Trading Systems, according to StockCharts' ChartSchool (accessed 25 October 2026). It compares the size of recent gains with the size of recent losses and scales the result from 0 to 100.
The formula, as ChartSchool gives it:
- RS = Average Gain / Average Loss
- RSI = 100 − (100 / (1 + RS))
- Default period: 14 bars. The first averages are simple 14-period averages. After that, each average is smoothed: (previous average × 13 + current value) / 14.
A worked example of the arithmetic: if the average gain is 1.5 and the average loss is 0.5, RS is 3 and RSI is 100 − 100/4 = 75. That is above 70, so the reading counts as overbought by Wilder's line.
A bar is one period on the chart, such as a day, an hour or a minute. The same 14-bar RSI on an hourly chart and on a daily chart can therefore give very different readings.
Where the overbought line sits
| Line | Who uses it | Source |
|---|---|---|
| Above 70 (oversold below 30) | Wilder's original levels | StockCharts ChartSchool |
| Above 80 (oversold below 20) | A stricter setting that produces fewer overbought readings | StockCharts ChartSchool; Macroption |
| 80 / 20 on a 2-period RSI | Short-term traders | StockCharts ChartSchool |
| 90 / 10 | Some traders | Macroption |
Macroption (accessed 25 October 2026) calls 20 and 80 the typical borders and lists 30/70 and 10/90 as alternatives. ChartSchool presents 70/30 as Wilder's levels and says they "can be adjusted to better fit the security or analytical requirements."
The trade-off works the same way at any level. Macroption says that the further a border sits from the middle (50), the less often the market crosses it and the fewer signals RSI gives. A stricter line gives fewer readings, each of them more extreme. It does not make any single reading more reliable.
Volatility matters too. ChartSchool notes that a volatile security reaches overbought and oversold levels more often than a stable one. That is one reason a fixed 70 line can fire often on fast-moving assets such as many cryptocurrencies.
Where does your RSI reading land?
Enter an average gain and an average loss over your look-back window to see the RSI value and how it compares with the 70 and 80 overbought lines.
| Average gain per bar over the look-back window | Average loss per bar over the look-back window (as a positive number) | RSI (0–100 scale); above 70 is overbought by Wilder's line, above 80 by the stricter line |
|---|---|---|
| 1.5 | 0.5 | 75 |
| 1.5 | 0.5 | 75 |
| 1 | 1 | 50 |
| 0.5 | 1.5 | 25 |
- Gain and loss values are your own inputs; the defaults repeat the article's illustrative example (RS 3, RSI 75), not market data.
- The default RSI period is 14 bars, and after the first values each average is smoothed as (previous average × 13 + current value) / 14; this calculator takes averages you have already worked out.
- A reading above 70 or 80 describes strong recent buying; it does not forecast a fall, and prices can stay overbought in a strong uptrend.
This is RSI arithmetic on your inputs only: it does not compute the smoothed averages from price data, does not adjust for timeframe, trend or volatility, and cannot show whether any reading predicts a price move.
What an overbought reading can and cannot tell you
What it shows: Buyers have been in control over the look-back window. In Macroption's words, high RSI "typically happens in an uptrend, when the bulls have more power than the bears."
What it does not show: That a drop is due. ChartSchool says:
- "Momentum oscillators can become overbought (oversold) and remain so in a strong up (down) trend."
- "Wilder considers overbought conditions ripe for a reversal, but overbought can also be a sign of strength."
Macroption likewise describes using RSI "as a trend following indicator," in which strength is read as strength rather than as a reason to bet against the move. It adds that the simplest RSI trading systems are "less likely to give you consistently profitable results."
Range shifts in trends
ChartSchool cites the analyst Constance Brown on how RSI's working range shifts with the trend:
- Uptrend: RSI "tends to fluctuate between 40 and 90," with the 40–50 zone acting as support.
- Downtrend: RSI "tends to fluctuate between 10 and 60," with the 50–60 zone acting as resistance.
ChartSchool adds that these ranges vary with the RSI settings, the strength of the trend and the volatility of the asset. In a strong uptrend, then, readings in the 70s can be normal rather than extreme.
Divergences and failure swings
Wilder also read RSI through its patterns, not only its level (per ChartSchool):
- Bearish divergence: price makes a higher high while RSI makes a lower high, which suggests momentum is fading. ChartSchool warns that "a strong uptrend can show numerous bearish divergences before a top materializes."
- Bearish failure swing: RSI rises above 70, falls back, bounces without getting back above 70, then breaks below its prior low.
These patterns describe changes in momentum. ChartSchool recommends confirming RSI signals with other tools.
A different indicator with the same name
"Overbought/Oversold" is also the name of a separate market-breadth indicator. MarketInOut (accessed 25 October 2026) defines it as a 10-period exponential moving average of the difference between the number of advancing and declining issues. On that page, readings above +200 are generally bearish and readings below −200 generally bullish. The page also says that "extreme readings may be a sign of a change in investor expectations" and may not be followed by the expected correction.
This gauge measures how many stocks in an index are rising versus falling. It has nothing to do with RSI's 0–100 scale, so RSI levels such as 70 or 80 do not apply to it. Only this one page was checked for this indicator.
How to read the label in practice
- Check the timeframe. Overbought on a 5-minute chart and overbought on a weekly chart describe very different moves.
- Check the line. Ask whether a "70" or an "80" setting is in use before comparing two readings.
- Check the trend. In an established uptrend, a high RSI may simply confirm strength (Brown's 40–90 range).
- Look for a pattern, not just a number. Divergences and failure swings say more about fading momentum than a single high reading.
Limitations: the descriptions above come from technical-analysis references, not from tested evidence. None of the sources cited shows that any RSI level predicts price moves in crypto markets.
