RSI Technical Analysis

About Relative Strength Index

The RSI (Relative Strength Index) is a momentum indicator and is one of the most used indicators in technical analysis. It oscillates in the range between 0 (zero) and 100 and measures relation between average gain an average loss over specified period (number of bars).

The ("")Relative Strength Index measures the strength of the  "" price trend. If during the analyzed period the stock had only positive days, the RSI will be equal to 100%. If all days in the analyzed period were negative then the RSI will be equal to zero. When you have mixture of positive and negative trading sessions (most of the time), the RSI shows whether positive or negative summary movements were stronger.

From the above you may say that when RSI readings are rising, we have strengthening of a price trend and when the RSI reading are declining we have weakening price trend. As with all indicators in technical analysis, it is not enough just to check an indicator readings, you need to see the direction in which an indicator moves.

The most common application of the RSI is to spot overbought and oversold levels

• The RSI readings above 70% are considered as overbought (green RSI values in the last column);
• The RSI readings below 30% are considered as oversold (red RSI values in the last column).

You have to bear in mid that oversold and overbought signals are not reversal signals and they are not buy/sell signals. The overbought and oversold are conditions when a stock has enough power to reverse in opposite direction. However, an overbought stock may continue rising and an oversold stock may continue falling. That is why RSI trading signals are generated not when RSI enters overbought or oversold zone, but when it exits from it.

Technical analysis suggests that Buy/Sell signal could be generated in the following way:

• buy signal is generated when the ("") RSI moves above 30% level after being below it (when RSI values in the last column turn black after being red);
• sell signal is generated when then ("") RSI drops below 70% after being above it (when RSI values in the last column turn black after being green).