Relative Strength Index

Relative Strength Index

 

Relative Strength Index, or RSI, was developed by J. Welles Wilder in 1978. It is one of the popular leading indicators and is useful during sideways or non-trending periods. Moreover, it is a banded oscillator that fluctuates from 0 to 100 only. It has a single parameter; where 14 is usually the default period.

One of the methods for analyzing RSI is to identify the oversold and overbought levels. For example, a reading greater than 70 will indicate that the underlying security is already overbought; thus, prices are expected to falter, and a reading below 30 will signify an oversold where prices are likely to rise afterwards.

Example

 

Gold – Electronic

 

The 14-day RSI on Gold – Electronic chart reached overbought levels between the period of November 13 and December 3, 2009. Prices had begun to decline after gold reached a high of 1,231.50.

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13 Responses to Relative Strength Index

  1. Marie Banh says:

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  4. Mitch Hoke says:

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  13. I can’t say I completely agree, many thanks for taking the time to come up with it

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