Read The Guide on Relative Strength Index RSI

Relative Strength Index (RSI)

The Relative Strength Index (RSI) is a well-versed momentum based oscillator which is used to measure the speed (velocity) as well as the change (magnitude) of directional price movements. Essentially RSI is a viable indicator of price movements.

RSI operates between a scale of 0 and 100 and the closer RSI is to 0, the weaker the momentum is for price movements and if the RSI is closer to 100 indicates a period of stronger momentum.

What To Look For?

Overbought and Oversold Markets

Any number above 70 considers as overbought and any number below 30 considers as oversold. An RSI between 30 and 70 is considerably neutral and an RSI around 50 signifies “no trend.”

Divergence

  • Bullish RSI Divergence – When price makes a new low but RSI makes a higher low.
  • Bearish RSI Divergence – When price makes a new high but RSI makes a lower high.

Most traders believe that Bearish Divergence creates a selling opportunity while Bullish Divergence creates a buying opportunity.

Reversals

Positive Reversal occurs when price makes a higher low while RSI makes a lower low and price proceeds to rise. Negative Reversal occurs when price makes a lower high while RSI makes a higher high and the price proceeds to fall.

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