Relative Strength Index
Relative Strength Index
The Relative Strength Index (RSI) is an oscillator that measures a particular financial instrument’s current relative strength compared to its own price history. The RSI should not be confused with relative strength which rates a financial instrument in relation to a market such as the S&P index.
The RSI is plotted on a vertical scale numbered from 0 to 100. The formula to calculate the RSI is 100-[100/(1+A)] where A is the average of the “up” closes over the calculation period divided by the average of the “down” closes over the calculation period. Recognia uses the popular 14-bar period in the calculation of the RSI. The “A” for a 14-day period is calculated by dividing the 14-day “up” close average by the 14-day “down” close average. An “up” close or a “down” close is defined as the absolute change in price from close to close.
Trading Considerations
The RSI sometimes shows more clearly than the price chart itself the support and resistance lines for a financial instrument. Failure Swings which are also known as support or resistance penetrations or breakouts can be detected by using the RSI. Failure swings occur when the RSI passes a previous high or falls below a recent low.
Divergences (when market trends go in a different direction than market indicators predicted, usually signifying the onset of a trend change) occur when the price makes a new high (or low) that is not confirmed by a new high (or low) in the RSI. Prices usually correct and move in the direction of the RSI.
A financial instrument is considered to be oversold when its RSI falls below 30 and overbought when its RSI rises over 70.
Source link Presented by FP Markets
Related materials
Volume indicators provide a very different kind of indicator because, instead of relying solely on the price, they take volume into account. Prices tell you in which direction an investment is moving...
The slow stochastic is an oscillating indicator. Developed by George Lane , it can alert you to a shift of investor sentiment from bullish to bearish or vice versa...
As their name suggests, oscillating indicators are indicators that move back and forth as prices rise and fall. Oscillating indicators can help you decide how strong...
Company fundamentals, such as the amount of money the companies earns and how efficiently they utilise their resources, drive the share and CFD markets...
Typically short-term, speculative trades are generally coupled to major market events such as central bank interest-rate decisions and company results.
Top 10 Forex Brokers 2019
| 1 |  | 92% |
| 2 |  | 89% |
| 3 |  | 88% |
| 4 |  | 86% |
| 5 |  | 84% |
| 6 |  | 82% |
| 7 |  | 81% |
| 8 |  | 78% |
| 9 |  | 77% |
| 10 |  | 72% |