RSI

What is Relative Strength Index (RSI) ?

The Relative Strength Index, commonly referred to as RSI, is a popular momentum oscillator that measures the speed and change of price movements. It is used in technical analysis to help identify overbought or oversold conditions in a trading instrument, such as stocks or cryptocurrencies.

How is RSI Calculated?

The RSI is calculated using the average gains and losses of a specified period, typically 14 days. The formula includes the following steps:

1. Calculate the average gain and average loss over the specified period.
2. Calculate the relative strength (RS) by dividing the average gain by the average loss.
3. Calculate the RSI using the formula: RSI = 100 - (100 / (1 + RS)).

Interpreting RSI Levels

RSI values range from 0 to 100. Traditionally, readings above 70 are considered overbought, suggesting that the asset may be due for a price correction.

Conversely, readings below 0 are considered oversold, indicating a potential buying opportunity.

Using RSI in Trading Strategies

Traders often use RSI in conjunction with other technical indicators to make more informed trading decisions. Some common strategies include looking for divergence between price and RSI, as well as using RSI crossovers or failure swings to signal potential trend reversals.

Ultimately, RSI can be a valuable tool for traders and investors seeking to better understand market conditions and make more strategic trading choices.