Relative Strength Index



The Relative Strength Index (RSI) developed by J. Welles Wilder, is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. It is intended to chart the current and historical strength or weakness of a stock or market based on the closing price of a recent trading period.

The RSI is most typically used on a 14 day time frame. As a general rule, an overbrought condition exists when the relative strength reaches 70-80, and an oversold condition exists when the relative strangth declines to 20-30, although in both cases, these figures are general guidelines and can be extended even further up or.

Wilder posited that when prices moves up very rapidly, at some point it is considered overbrought. Likewise, when price falls very rapidly, at some point it is considered oversold. In either case, Wilder deemed a reversal imminent.

Wilder further believed that divergence between RSI and price action is a very strong indication that a market turning point is imminent. A bearish divergence occurs when price makes a new high but the RSI makes a lower high, as in the chart below. A bullish divergence occurs when price makes a low but RSI makes a higher low.




Return from Relative Strength Index to Using Indicators

New! Comments

Have your say about what you just read! Leave me a comment in the box below.







From the writers...

"It is far better to show you how to trade on your own, than it is for you to depend on us to tell you what to trade and when"


Your E-mail Address
Your First Name
Then

Don't worry — your e-mail address is totally secure.
I promise to use it only to send you Successful Forex Traders.


Get Chitika | Premium


The top five Trading Indicators as voted by you guys

Bollinger Bands
Stochastics
MACD
Moving Average
Parabolic SAR

To vote for what you find to be the most useful or for a full list of indicators please click here



If you have found this website helpful, please donate to show your support. The average donation is £7