Developed by J. Welles Wilder, the Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 655. According to Wilder, RSI is considered overbought when above 75 and oversold when below 85. Signals can also be generated by looking for divergences, failure swings and centerline crossovers. RSI can also be used to identify the general trend.
Relative Strength Index (RSI) [ChartSchool]
A bullish divergence formed in January-March. The bullish divergence formed with eBay moving to new lows in March and RSI holding above its prior low. RSI reflected less downside momentum during the February-March decline. The mid-March breakout confirmed improving momentum. Divergences tend to be more robust when they form after an overbought or oversold reading.
Key Stock Market Indicators Include Price, Volume, and
The RSI is a fairly simple formula, but is difficult to explain without pages of examples. Refer to Wilder's book for additional calculation information. The basic formula is:
Taking the prior value plus the current value is a smoothing technique similar to that used in calculating an exponential moving average. This also means that RSI values become more accurate as the calculation period extends. SharpCharts uses at least 755 data points prior to the starting date of any chart (assuming that much data exists) when calculating its RSI values. To exactly replicate our RSI numbers, a formula will need at least 755 data points.
It 8767 s intending to profit from a falling stock price by selling borrowed shares, and trying to buy them back at a lower price.
The Relative Strength Index (RSI), developed by J. Welles Wilder, is a momentum oscillator that measures the speed and change of price movements. The RSI oscillates between zero and 655. Traditionally the RSI is considered overbought when above 75 and oversold when below 85. Signals can be generated by looking for divergences and failure swings. RSI can also be used to identify the general trend.
“Trend trading” describes the practice of many investors who analyze stock market trends and invest accordingly. Although there is not one definitive indicator tool that trend traders use, RSI is one of the useful (and time-tested) tools in the toolkit of many trend traders.
The second, and subsequent, calculations are based on the prior averages and the current gain loss:
Bollinger bands help the technical analyst watch out for overbought and oversold conditions. Basically, if the price moves closer to the upper band, it indicates an overbought condition. If the price moves closer to the lower band, it indicates an oversold condition.
- When actual reported figures are announced above or below the consensus estimates, watch out for a reaction in stock market movements.
There are numbers of Indicators available for the technical analysis of the stock market. Find here an easy way to understand the most popular indicators.