Relative Strength Index (RSI) | RSI FORMULA

The Relative Strength Index (RSI) is a momentum oscillator that measures the magnitude of recent price changes to determine whether an asset is overbought or oversold. The RSI is a technical analysis tool that can be used in different financial markets such as stocks, currencies, commodities, and bonds.

The RSI is based on the premise that as prices rise, the market is becoming overbought, and as prices fall, the market is becoming oversold. The RSI is calculated using a formula that compares the average gains to the average losses over a specified period of time (usually 14 periods).

The RSI formula is as follows:

RSI = 100 - (100 / (1 + RS))

Where RS is the average gain over a specific period divided by the average loss over the same period.

The RSI is plotted on a scale of 0 to 100. An RSI reading above 70 is considered overbought, and a reading below 30 is considered oversold. Traders and investors use the RSI to identify potential buy and sell signals. For example, when the RSI reaches overbought territory, it may be a signal that the asset is due for a price correction, which could be an opportunity to sell. Conversely, when the RSI reaches oversold territory, it may be a signal that the asset is due for a price rebound, which could be an opportunity to buy.

The RSI can also be used to confirm market trends. If the RSI is rising while the price is also rising, it may indicate that the upward trend is strong. On the other hand, if the RSI is falling while the price is also falling, it may indicate that the downward trend is strong.

Overall, the RSI is a popular technical analysis tool that can help traders and investors to identify potential buying and selling opportunities and confirm market trends.