The RSI is a momentum indicator, which measures a stock's price with relation to its past performance. It is front weighted thus it reflects a better velocity reading than other indicators and is less affected by sharp rises or drops in the stock's price. The best characteristic of this indicator is that it filters out some of the noise in a stock's trading activity.

RSI's absolute levels are 0 and 100. Traditionally, buy signals are indicated at 20 to 30, and sell signals are triggered at 70 to 80 but these numbers will vary somewhat depending on the number of days used in the calculation. A shorter span of time will result in a more volatile indicator with extreme values while a longer period results in a less volatile reading with fewer extreme indications.

Some analysts use the RSI indicator to compare multiple equities against each other but that is not an infallible system. Some stocks may retreat when their RSI indicator reaches one number while others react at slightly different levels. However, these levels are still relatively close to each other and the majority change direction near 30 and 70.

RSI is a momentum indicator that can indicate changes ahead of price movements because the RSI treats price as a rubber band. The rubber band can be stretched to a certain point, and unless it breaks, the rubber band will contract. RSI also works well with trendlines, support and resistance lines, and divergence.

One of the best characteristics of the RSI is the indication that is given when there is a divergence between price action and the RSI. When you observe an upwardly sloping price and downward sloping RSI, this generally indicates that price is about to move lower. The reverse is true for downward sloping price and upward sloping RSI. Learn more about technical indicators like RSI in "Technical Analysis from A to Z" by Steven B. Achelis.