What is RSI?
The Relative Strength Index (rsi) is a momentum indicator used in technical analysis that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset. The RSI was developed by J. Welles Wilder, who popularized the strategy of using indicators to measure changes in the price of a security.
The history of the RSI indicator dates back to the early 1900s, when it was first used to measure the degree of optimism among investors. The RSI was one of the first indicators used to measure the momentum of a stock’s price movement. The RSI is often considered an alternative to the more common oscillator, which measures the magnitude of a stock’s price change rather than its rate of change. The RSI, however, is also used to measure the momentum of a stock’s price movement.
The original RSI formula was calculated by Wilder as follows: \[RSI = 100 – ((100 – OMA) / LMA)\].
The RSI indicator is usually plotted as a line on rsi chart, a line graph that moves between two extreme (denoted as overbought (OBS) and oversold (OSS)) that oscillates between 0 and 100.
RSI chart values and trends:
The 100 mark on rsi chart indicates an overbought condition, while a reading lower than 100 indicates an oversold condition. The general rule of thumb for determining overbought/oversold is if the RSI is above 70, the asset is considered to be overbought, and if the RSI is below 30, the asset is considered to be oversold. The overbought and oversold conditions are represented by green and red respectively.
The RSI will ascend as the number and size of positive closes increment, and it will fall as the number and size of misfortunes increment. The second piece of the estimation smooths the outcome, so the RSI will just approach 100 or 0 in an emphatically moving business sector.
Bearish and Bullish divergence:
In theory, significant divergences among RSI and the instrument’s value development offer a solid sign that an inversion is going to happen.
There are two kinds of divergence:
Negative divergence (a ‘Sell’ signal): Value comes to another high yet the RSI is at a lower high
Bullish divergence (a ‘Purchase’ signal): Value comes to a new low yet the RSI is at a higher low\
Benefits of RSI chart;
It is broadly utilized by Technical Analysts over the globe.
RSI chart can be utilized to detect an overall pattern
It is considered overbought when it goes over 70 and oversold when it goes under 30
RSI chart can likewise be utilized to search for disappointment swings, divergences and focus line hybrid