RSI is a momentum indicator that measures the speed and magnitude of a stock’s recent price changes. It was developed by J. Welles Wilder and is one of the most widely used technical analysis tools.
How It Works
RSI is calculated on a scale of 0 to 100, based on average gains vs. average losses over a set period (typically 14 days).
The formula in simple terms:
RSI = 100 − [100 ÷ (1 + Average Gain / Average Loss)]
The Key Levels
| RSI Level | Interpretation |
|---|---|
| Above 70 | 🔴 Overbought — stock may have risen too fast, possible pullback |
| 30–70 | 🟡 Neutral zone — normal trading range |
| Below 30 | 🟢 Oversold — stock may have fallen too fast, possible bounce |
| Below 20 | 🔴 Deeply oversold — extreme selling pressure |
What “Oversold” Means for HDFC Bank
When HDFC Bank’s RSI dropped below 30, it signals that the stock has been sold aggressively and continuously to the point where it may be undervalued in the short term.
Think of it like a stretched rubber band — the further it’s pulled down, the more likely it snaps back.
Important Caveat
RSI oversold does not guarantee a bounce. It simply means:
- Selling pressure has been extreme
- A reversal could be near
- Traders watch it as a potential entry signal, often combined with other indicators
