How to Read RSI on PSX Stocks: The Only Guide You Need with Real Examples
The Relative Strength Index (RSI) is one of the most widely used technical indicators in the Pakistan Stock Exchange (PSX), yet it's also one of the most misunderstood. At its core, RSI is a bounded oscillator — it always sits between 0 and 100. The standard formula uses a 14-period lookback and compares the average of up moves to the average of down moves:
What RSI Actually Measures The Relative Strength Index (RSI) is one of the most widely used technical indicators in the Pakistan Stock Exchange (PSX), yet it's also one of the most misunderstood. At its core, RSI is a bounded oscillator — it always sits between 0 and 100. The standard formula uses a 14-period lookback and compares the average of up moves to the average of down moves:
RSI = 100 − (100 ÷ (1 + RS)), where RS = average gain over 14 periods ÷ average loss over 14 periods
Interpretation in plain English: RSI is asking how strong has the up-move momentum been relative to the down-move momentum over the recent past? A reading of 50 means gains and losses have been balanced. Above 50 means bulls have dominated; below 50 means bears have.
The traditional interpretation that most traders learn is:
RSI > 70 = overbought (momentum has run hot) RSI < 30 = oversold (selling has been extreme) But here's where the misinterpretation everyone falls into begins: "RSI < 30 = buy" and "RSI > 70 = sell." Neither is a signal by itself. This oversimplification has cost PSX traders millions of rupees in missed opportunities and unnecessary losses.