Relative Strength Index (RSI) – Stock Market Indicator
The Relative Strength Index (RSI) is a momentum oscillator used in technical analysis to measure the speed and change of price movements. It helps traders identify overbought and oversold conditions in a stock, commodity, or other asset.
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Key Features of RSI
1. Formula
RSI is calculated using the following formula:
RSI = 100 - \left( \frac{100}{1 + RS} \right)
RS (Relative Strength) = Average gain over a period / Average loss over the same period
The default lookback period is 14 days (RSI-14).
2. RSI Range (0–100)
Above 70 → Overbought (potential selling opportunity)
Below 30 → Oversold (potential buying opportunity)
Between 40 and 60 → Neutral (trend consolidation)
3. Divergence Signals
Bullish Divergence → RSI rises while the price is falling (potential reversal to the upside).
Bearish Divergence → RSI falls while the price is rising (potential reversal to the downside).
4. RSI-Based Trading Strategies
Overbought/Oversold Strategy → Buy when RSI < 30, sell when RSI > 70.
RSI Crossover Strategy → Buy when RSI crosses above 30, sell when RSI crosses below 70.
RSI Trend Confirmation → RSI above 50 suggests an uptrend, below 50 suggests a downtrend.
5. Best RSI Settings for Different Trading Styles
Day Trading → RSI(7) for faster signals.
Swing Trading → RSI(14) (default).
Long-Term Investing → RSI(21) for smoother trends.
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