WHAT IS RELATIVE STRENGTH INDEX (RSI)?
Relative Strength Index:
The Relative Strength Index (RSI) is a technical indicator used in the technical analysis of financial markets. It is intended to chart the current and historical strength or weakness of a stock or market based on the closing prices of a recent trading period. The indicator should not be confused with relative strength.
The RSI is classified as a momentum oscillator, measuring the velocity and magnitude of directional price movements. Momentum is the rate of the rise or fall in price. The RSI computes momentum as the ratio of higher closes to lower closes: stocks which have had more or stronger positive changes have a higher RSI than stocks which have had more or stronger negative changes.
It is a price-following oscillator that ranges between 0 and 100. When Wilder introduced the Relative Strength Index, he recommended using a 14-day RSI.. Since then, the 9-day and 25-day Relative Strength Index indicators have also gained popularity.
FORMULA OF RSI:
100
RSI = 100 - --------
1 + RS
RS = Average Gain / Average Loss.
WHAT IS OVER BOUGHT AND OVERSOLD?
Technical tool that attempts to define when prices have moved too far and fast in either direction. This is usually calculated based on a moving of the difference between the number of advancing and declining over a certain period of time. If the market is considered over bought, the technical analyst will sell, and if the market is considered over sold, he/she will buy.
How to Use RSI
Instead of going into all the math equations and such to show the RSI, I found it 10x easier to learn just by looking at it and observing. There are a few things you need to know:
• Overbought - A stock is overbought if the RSI shows a level above 70.
• Oversold - A stock is oversold if the RSI shows a level below 30.
The centerline for RSI is 50. Understanding the main concept is very simple. If the stock is showing an RSI less than 50 we can say that the average losses are greater than the average gains, and with RSI above 50 we can say that the average gains are greater than the average losses.
The Relative Strength Index (RSI) is a technical indicator used in the technical analysis of financial markets. It is intended to chart the current and historical strength or weakness of a stock or market based on the closing prices of a recent trading period. The indicator should not be confused with relative strength.
The RSI is classified as a momentum oscillator, measuring the velocity and magnitude of directional price movements. Momentum is the rate of the rise or fall in price. The RSI computes momentum as the ratio of higher closes to lower closes: stocks which have had more or stronger positive changes have a higher RSI than stocks which have had more or stronger negative changes.
It is a price-following oscillator that ranges between 0 and 100. When Wilder introduced the Relative Strength Index, he recommended using a 14-day RSI.. Since then, the 9-day and 25-day Relative Strength Index indicators have also gained popularity.
FORMULA OF RSI:
100
RSI = 100 - --------
1 + RS
RS = Average Gain / Average Loss.
WHAT IS OVER BOUGHT AND OVERSOLD?
Technical tool that attempts to define when prices have moved too far and fast in either direction. This is usually calculated based on a moving of the difference between the number of advancing and declining over a certain period of time. If the market is considered over bought, the technical analyst will sell, and if the market is considered over sold, he/she will buy.
How to Use RSI
Instead of going into all the math equations and such to show the RSI, I found it 10x easier to learn just by looking at it and observing. There are a few things you need to know:
• Overbought - A stock is overbought if the RSI shows a level above 70.
• Oversold - A stock is oversold if the RSI shows a level below 30.
The centerline for RSI is 50. Understanding the main concept is very simple. If the stock is showing an RSI less than 50 we can say that the average losses are greater than the average gains, and with RSI above 50 we can say that the average gains are greater than the average losses.