The Relative Strength Index (RSI), also known as the Relative Strength Index (RSI), is a widely used technical analysis indicator to measure the speed and variability of an asset's price movements. It was developed by J. Welles Wilder Jr. and is one of the most popular indicators among traders and investors.

Purpose of the RSI:

The main purpose of the RSI is to identify overbought and oversold conditions in a market. It oscillates between 0 and 100, and the readings are interpreted as follows:

* Above 70: Indicates that the asset is overbought, suggesting that the price may be about to fall.

* Below 30: Indicates that the asset is oversold, suggesting that the price may be about to rise.

How the RSI works:

The RSI is calculated based on the average gains and losses of an asset over a given period, usually 14 periods. The RSI formula is as follows:

RSI = 100 - [100 / (1 + FR)]

Where FR is Relative Strength = Average Gains / Average Losses

Interpretations and Uses of RSI:

In addition to identifying overbought and oversold conditions, the RSI can also be used to:

Identify Divergences:

Divergences occur when the price of an asset moves in one direction, but the RSI moves in the opposite direction. This may indicate a possible trend reversal.

Confirm Trends:

The RSI can be used to confirm the strength of a trend. An uptrend is considered strong when the RSI remains above 50, and a downtrend is considered strong when the RSI remains below 50.

Identify Swing Failures:

Swing failures occur when the RSI fails to reach the 70 and 30 extremities, indicating possible trend reversals.