Introduction

RSI is a technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset.

RSI was developed by J. Welles Wilder, the Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. According to Wilder, RSI is considered overbought when above 70 and oversold when below 30. Signals can also be generated by looking for divergences, failure swings and centerline crossovers. RSI can also be used to identify the general trend.

Formula

RSI = 100 - 100/(1 + RS*)
Where RS = Average of X days' up closes / Average of X days' down closes.

Advantage

The relative strength index is one of the most popular technical indicators. RSI is computed on the basis of the speed and direction of a stock's price movement. This means that the RSI indicator only measures the stock's internal strength based on its past and should not be confused with its relative strength, that is compared with other stocks, market indices, sectorial indices, etc.

Sample Calculation

Technical chart for RSI