Relative Strength Index(RSI)
The relative strength index (RSI) is a popular momentum oscillator that can be used to determine the future direction of a market. Traders can use the RSI to gauge whether momentum is accelerating or decelerating. It can also be used to evaluate whether a security is overbought or oversold. The RSI is a popular technical analysis tool and can help traders identify and generate trading opportunities in the markets.
RSI calculation
100 RSI = 100 - (100/1 + average gain / average loss)
How to use the relative strength index
The RSI can be used in several ways to determine market trends. The most popular way of measuring market trends is to evaluate whether a security is overbought or oversold. This method employs a contrarian style of trading the market: one buys the dip because the proverbial rubber band has stretched too far too fast and is likely to bounce back. When the RSI lines are above 70, the indicator signals that the instrument is overbought. When the RSI lines are below 20, it signals that the instrument is oversold.
