Relative Strength Index RSI Definition, Calculation, & Concept

relative strength index definition

A convergence happens when the price and RSI move in the same direction, suggesting that the divergence may have led to a trend reversal. Conversely, if the downtrend cannot reach 30 or below and then rallies above 70, that downtrend has weakened and could be reversing to the upside. Remember, both trend lines and moving averages are helpful technical tools to include when using the RSI in this way.

Another essential thing is to avoid using the RSI as a self-sufficient indicator. That is why you shouldn’t base your trading decisions on the RSI solely. Combine it with other indicators, be it technical or fundamental (moving average or stochastic oscillators, for example).

Can the RSI be applied to different timeframes?

The RSI is most typically used on a 14-day timeframe, measured on a scale from 0 to 100, with high and low levels marked at 70 and 30, respectively. Short or longer timeframes are used for alternately shorter or longer outlooks. High and low levels—80 and 20, or 90 and 10—occur less frequently but indicate stronger momentum.

Once again, the more repetitive this process is, the stronger the upcoming bearish signal will be. This is another trend reversal signal that confirms the importance of taking into account both the RSI and the price movements and not analyzing any of them in isolation. The Relative Strength Index (RSI) is among the most widely used trading indicators in technical analysis. Welles Wilder Jr., singled out as “the premier technical trader publishing his work today” by Forbes magazine in 1980. Applied correctly, the RSI can help a trader recognize the signs of overbought and oversold markets. The limitations of RSI all have to do with the trading period.

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The values of the RSI oscillator, typically measured over a 14-day period, fluctuate between zero and 100. The Relative Strength Index indicates oversold market conditions when below 30 and overbought market conditions when above 70. They look for signals of waning or strengthening momentum in short to intermediate term price movements within a market. Overbought or oversold conditions often immediately precede short-term trend changes that present trading opportunities. RSI helps traders identify overbought or oversold conditions in the market, as well as potential trend reversals.

relative strength index definition

RSI charts can be found under the Chart tab, either Streaming or Interactive. When viewing the chart, use the Chart Options to add an RSI window to the chart. The indicator signals that shares are being sold off, but have not yet entered oversold territory. RSI values are most often displayed on a separate chart, above or below the price chart, as in the example below showing the close for Apple stock on Tuesday, November 13, 2018. Viktor has an MSc in Financial Markets and years of investing experience.

Bearish trend alert signal

The relative strength index (RSI) is a momentum indicator that measures recent price changes as it moves between 0 and 100. The RSI provides short-term buy and sell signals and isused to track the overbought and oversold levels of an asset. The RSI offers several advantages in market analysis, including its ability to identify overbought and oversold conditions, signal potential trend reversals, and confirm price movements.

Relative strength index (RSI): definition, calculation and uses –

Relative strength index (RSI): definition, calculation and uses.

Posted: Mon, 14 Aug 2023 07:00:00 GMT [source]

Additionally, a fluctuating RSI around the mid-line could suggest a range-bound market or a period of consolidation. Welles Wilder Jr. in 1978 and is typically represented as an oscillator, with values ranging from relative strength index definition 0 to 100. To make sound investments, understanding the Relative Strength Index can be helpful. We do not manage client funds or hold custody of assets, we help users connect with relevant financial advisors.