relative strength index
Relative Strength Index (RSI) is a chart tool that measures whether a stock has been bought too much or sold too much lately, on a scale of 0 to 100.
In plain English
Uche trades bank stocks on the Nigerian Exchange from a small office in Yaba, and one Tuesday he watched a particular stock climb for eight straight days until everyone on his WhatsApp group was shouting that it would double by Friday.
Something made him check his charts instead of joining the shouting, and there it was, the RSI had crossed above 70, sitting in what traders call overbought territory.
RSI is simply a number between 0 and 100 that tells you how fast and how far a price has moved recently, comparing the size of recent gains to the size of recent losses over a set period, usually 14 days.
When the number climbs above 70, it suggests buyers have been very eager and the stock might be due for a rest or a pullback. When it falls below 30, it suggests sellers have been very eager and the stock might be due for a bounce.
Uche did not sell everything based on that number alone, because RSI is a hint, not a prophecy, and a strong stock can stay overbought for a long time. But it made him ask better questions before adding more money to a stock that had already run far.
A trader in London tracking Tesla shares or a Nigerian civil servant checking Dangote Cement on a trading app uses the same idea, watching that number to avoid buying right at the top of everyone else's excitement.
A stock rises from ₦40 to ₦58 in two weeks with barely any down days, and its RSI reads 78. That high reading warns that the rally has been unusually one sided and a cool off could follow, even though nothing about the company itself has changed.
Questions people ask
Is a high RSI a signal to sell immediately?
Not on its own. It shows a stock has risen sharply and may pause or pull back, but strong stocks can stay overbought for weeks. Most experienced traders combine it with other signals rather than acting on RSI alone.
Can beginners use RSI without understanding charts deeply?
Yes, most trading apps calculate and display it automatically. You just need to know that above 70 suggests overbought and below 30 suggests oversold, then use that as one input among several before deciding.
Does RSI work for Nigerian stocks the same way it works for stocks abroad?
Yes, the maths behind RSI is the same everywhere. What differs is that Nigerian stocks can be thinner in trading volume, so the reading can swing more sharply on smaller amounts of buying or selling.
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