☝️💰 What is the RSI Indicator or Relative Strength Index? 📈
The RSI is an oscillator-type indicator that reflects the relative strength of upward movements compared to downward movements of various securities trading in the stock markets.
☝️ It is calculated from the initial relative strength value (RS), which is the ratio of the average of upward closes to the average of downward closes over a certain period. Its formula is as follows:
✅️ RS = Exponential moving average of 'N' upward periods / Exponential moving average of 'N' downward periods (in absolute value)
Then the value of the RSI indicator is obtained by indexing the previous data to 100 with the following formula:
🎯 RSI = 100 – (100/1 + RS)
From this formula, a chart is created that appears as a line that varies between 0 and 100, with levels 30 and 70 being key indicators for oversold and overbought conditions, respectively.
📊An RSI indicator between 50 and 30 points indicates a trend towards oversold conditions in the market, suggesting that prices could fall sharply.
📊An RSI indicator between 50 and 70 points marks a trend towards overbought conditions: the price has risen strongly but the upward movement may weaken.
📊An RSI indicator around 50 (midpoint) indicates that the market lacks trend.
🤓The crossing of levels 30, 50, and 70 provides trading signals to enter or exit the market.
