Relative Strength Index (RSI): Here’s how investors can use it to their advantage; and 5 stocks at either extreme

One of the simplest technical indicators that investors can employ is the Relative Strength Index (RSI). How does it work and how can investors use it to their advantage?

What are the Best ASX Stocks to invest in right now?

Check our buy/sell tips

What is the RSI?

The Relative Strength Index (RSI) is a technical indicator that compares the magnitude of recent gains to recent losses in a stock’s price. It is calculated as a ratio between positive and negative average price changes, usually over the past 14 days. The RSI ranges from 0 to 100, with higher readings indicating strong buying momentum, while lower readings indicate strong selling pressure. As a general rule, a stock with an RSI over 70 is considered over-bought while a stock with an index under 30 is considered over-sold.

The RSI can be a useful tool for investors as it helps them assess whether a security is currently overbought or oversold, allowing them to make more informed trading decisions. By analysing both historical values and current values of the RSI, investors can identify potential reversals in trend direction before they occur. This allows traders to maximise their profits while minimising their exposure to risk by entering into positions at opportune times.

How to use it to your own advantage

Investors can use the Relative Strength Index (RSI) to their advantage by making informed decisions about when to buy and sell stocks. By taking into account the RSI, investors can make more informed decisions regarding when to buy or sell a stock. Considering a stock with a reading below 30, some investors may consider it a buying opportunity if and when the trend reverses.

Obviously, it is about catching the stock as it enters an uptrend again. If the downtrend continues, they can lose money. It is important to consider why a stock is oversold in the first place and whether or not those factors might either reverse or disappear. The same applies in relation to stocks that are overbought. Some investors may take it as a shorting opportunity, thinking the trend must reverse. If correct, you make money, but if you are wrong, you lose money.

And of course, as the example of Cettire shows, the metric becomes irrelevant when good or bad news comes and the share price suddenly moves in one direction.

5 ASX stocks with a high RSI

Australian Rare Earths (ASX:AR3) (93)

AR3 has the Koppamurra rare earths project. The rare earths sector has been heating up as demand for REEs in Western-friendly jurisdictions heats up. AR3 announced that a 3‑tonne bulk heap leach trial at its Koppamurra rare earths project achieved over 60% recovery of magnet rare earth elements (Nd, Pr, Dy, Tb). They have also previously secured government grants or engaged in policy‐aligned work under the critical minerals thematic. Moreover, AR3 has been active with exploration in its Overland Uranium Project and has had recent newsflow about expanding its resource base

Nova Minerals (ASX:NVA) (92)

Investors would notice that this gold/antimony developer appears to have secured a meeting with Donald Trump and this led to a big rally this week. But this was just the latest in a recent run of good news for it including US$43.4m in US Department of War Funding, strengthening its balance sheet to free up capital for development, and securing a land use permit in Alaska for an antimony refinery.

Australian Strategic Materials (ASX:ASM) (92)

ASM has the ‘Dubbo Project’ which is located 25km from its namesake town and is an integrated ‘mine to metals’ critical minerals project. It has had good newsflow lately including securing $16m in capital in July, a $5m government grant and there has been positive operational news (i.e. heap leach testwork and metal sales).

Artrya (ASX:AYA) (79)

Artrya is the company behind the Salix range of heart disease protection devices such as the Salix Coronary Anatomy (SCA) which uses AI to provide clinicians with the rapid reporting of vulnerable plaque, which is a major detector of heart attacks. FDA approval was obtained earlier this year and the company has made progress including securing its first US contract and revenues.

ANZ (ASX:ANZ) (78)

It is rare to see a big bank with an extreme RSI. But ANZ is up over 30% in the last 6 months as Nuno Matos took the reigns and began to put his stamp on the bank.

5 ASX stocks with a low RSI

WaterCo (ASX:WAT) (10)

Capped at $190m, WaterCo operates in the water treatment, pool equipment, filtration, and sanitisation space. It appears investors did not like its FY25 results where even though revenue grew 2%, its profit fell 31% to $9.6m.

American Uranium (ASX:AMU) (18)

Formerly GTI Energy, this company has been a victim of uranium price volatility. Its flagship asset is the Lo Herma In‑Situ Recovery (ISR) uranium project in the American state of Wyoming that has an 8.57/lb uranium resource. It is at the drilling stage and so is reliant on good exploration results for upward share price momentum.

Steamships Trading Company (ASX:SST) (19)

SST is a diversified business group, listed both on the ASX and PNG’s stock exchange but is heavily active in the latter. For this reason, it isn’t well known by investors here and has few announcements. Its most recent results were not that bad at all with 7% revenue growth, although its profit fell 1.7%.

Myer (ASX:MYR) (26)

Last time we wrote about Myer, we titled the article ‘Investors hated its FY25 results with a passion’ and it seems that is still true. As we said then, the results were not that bad in their own right, but they showed problems investors thought were either solved or close to a resolution actually were not. Total sales growth was 0.5% on a pro forma basis, but this reflected contributions from Apparel Brands; but its EBIT line was 13.8% lower and its NPAT was $211m in the red.

Treasury Wine Estates (ASX:TWE) (27)

TWE has never been the same since China’s tariffs on Australian wine exports. Yes they are gone, but the impact lingers on. Moreover, a trading update for FY26 was negative for investor sentiment.

The key to using the RSI well is to use it with other indicators

In both instances, the RSI only helps you identify a potential opportunity. It is insufficient to determine the exact direction the stock will go and when exactly a trend reverses. The index’s reliability and accuracy increases when used in conjunction with other technical indicators. This helps to gain a more comprehensive understanding of the current market conditions, providing better insights for informed trading decisions. The key is to identify when a stock has broken out of a downtrend or is in a new uptrend.

Furthermore, different technical indicators often provide unique signals that can complement one another and lead to improved trading results. Therefore, while any individual metric can be effective when used on its own, its use should ideally be combined with other indicators as part of an integrated approach to trading.

Overall, the goal is to identify these potential reversal points in a stock’s movement. By doing so, investors can make more informed decisions regarding when to enter or exit positions in order to take advantage of potential profits.