Relative Strength Index (RSI)

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Relative Strength Index (RSI)

Implication

When the RSI falls below 30 (a Technical Analysis), a bullish signal is generated. When the RSI rises above 70, the Technical Analysis is a bearish signal.

Description

The Relative Strength Index (RSI) is an oscillator that measures a particular financial instrument’s current relative strength compared to its own price history. The RSI should not be confused with relative strength which rates a financial instrument in relation to a market such as the S&P index.

The RSI is plotted on a vertical scale numbered from 0 to 100. The formula to calculate the RSI is 100-[100/(1+A)] where A is the average of the “up” closes over the calculation period divided by the average of the “down” closes over the calculation period.

Different calculation periods can be used. The most popular is a 14-day period. The “A” for a 14-day period is calculated by dividing the 14-day “up” close average by the 14-day “down” close average. An “up” close or a “down” close is defined as the absolute change in price from close to close.

Trading Considerations

The RSI sometimes shows more clearly than the price chart itself the support and resistance lines for a financial instrument. Failure Swings which are also known as support or resistance penetrations or breakouts can be detected by using the RSI. Failure swings occur when the RSI passes a previous high or falls below a recent low.
Divergences (when market trends go in a different direction than market indicators predicted, usually signifying the onset of a trend change) occur when the price makes a new high (or low) that is not confirmed by a new high (or low) in the RSI. Prices usually correct and move in the direction of the RSI.
A financial instrument is considered to be oversold when its RSI falls below 30 and overbought when its RSI rises over 70.Message for you(Trader/Investor): Google has the answers to most all of your questions, after exploring Google if you still have thoughts or questions my Email is open 24/7. Each week you will receive your Course Materials. You can print it and highlight for your Technical Analysis Training.

Message for you(Trader/Investor): Google has the answers to most all of your questions, after exploring Google if you still have thoughts or questions my Email is open 24/7. Each week you will receive your Course Materials. You can print it and highlight for your Technical Analysis Training.

Wishing you a wonderful learning experience and the continued desire to grow your knowledge. Education is an essential part of living wisely and the Experiences of life, I hope you make it fun.

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