Relative Strength Index - RSI

Dictionary Says

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.
 

Relative Strength Index (RSI)


As you can see from the chart, the RSI ranges from 0 to 100. An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback. Likewise, if the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore likely to become undervalued.

Investopedia Says

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.

Related Video for 'Relative Strength Index - RSI'

Articles Of Interest

  1. Trading Is Timing

    Learn how to make gains even if you don't get in at the right time.
  2. Relative Strength Index (RSI)

    Learn more about this technical momentum indicator that determines whether an asset is overbought or oversold.
  3. Momentum And The Relative Strength Index

    These two indicators can give the trader a better understanding of when to get in and out of an issue.
  4. Find Forex Profit With The RSI Rollercoaster

    This high-reward setup will provide plenty of ups and downs before a big climb.
  5. An Introduction To The Relative Strength Index

    Learn the difference between relative strength and the relative strength index, a frequently used technical analysis oscillator.
  6. Kairi Relative Index: The Forgotten Oscillator

    Though an older indicator, Kairi can still be a valuable tool for experienced investors.
  7. An Introduction To Oscillators

    Find out how this indicator may help improve the average investor's entry and exit points.
  8. Relative Strength Index And Its Failure-Swing Points

    Confirm your buy and sell signals with this oscillator categorized as an overbought/oversold index.
  9. Value Investing + Relative Strength = Higher Returns

    Buying value stocks that are moving higher helps investors steer clear of value traps.
  10. Finding Short Candidates With Technical Analysis

    Learn how to distinguish tops and bottoms in the equity market when short selling.
comments powered by Disqus
Marketplace
Hot Definitions
  1. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...
  2. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.
  3. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.
  4. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.
  5. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...
  6. Bailment

    The contractual transfer of possession of assets or property for a specific objective.
Trading Center