Relative Strength Index (RSI) Indicator

Relative Strength Index (RSI) Indicator

The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. It is primarily used to identify overbought or oversold conditions in a market, helping traders make informed decisions about potential reversals or continuations in price trends. The RSI is calculated on a scale from 0 to 100 and is typically used with a threshold of 70 for overbought conditions and 30 for oversold conditions.

Calculation

RSI is calculated using the following formula:

    RSI = 100 - (100 / (1 + RS))    RS = Average Gain / Average Loss

Examples

  • Overbought Condition: If the RSI value reaches 75, it indicates that the Asset may be overbought, suggesting a potential price correction.
  • Oversold Condition: An RSI value of 25 indicates that the Asset may be oversold, signaling a potential buying opportunity.

Cases

  • Case 1: In a Bullish trend, an RSI reading that consistently remains above 70 may indicate strong buying momentum, but traders should watch for signs of a reversal.
  • Case 2: During a bearish trend, an RSI that stays below 30 may suggest prolonged selling pressure, but a sudden spike above this level could indicate a potential Trend Reversal.