Relative Strength Index - RSI
Definition of 'Relative Strength Index - RSI'
A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset. It is calculated using the following formula:
RSI = 100 - 100/(1 + RS*)
*Where RS = Average of x days' up closes / Average of x days' down closes.
Investopedia explains 'Relative Strength Index - RSI'
A trader using RSI should be aware that large surges and drops in the price of an asset will affect the RSI by creating false buy or sell signals. The RSI is best used as a valuable complement to other stock-picking tools.
Let's go two steps further with the RSI indicator by reading An Introduction To The Relative Strength Index and Relative Strength Index And Its Failure-Swing Points.