The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements in the stock market
. Developed by J. Welles Wilder, the RSI is a popular indicator used in technical analysis to evaluate overvalued or undervalued securities
. It is displayed on a scale of 0 to 100 and is considered overbought when above 70 and oversold when below 30
. Some key aspects of the RSI include:
- Oscillation : The RSI oscillates between zero and 100, moving in a range that is usually from 0 to 100
- Overbought and Oversold : Traditionally, an RSI reading above 70 indicates an overbought situation, while a reading below 30 indicates an oversold condition
- Signals : The RSI can provide short-term buy and sell signals, with low RSI levels (below 30) generating buy signals and high RSI levels (above 70) generating sell signals
. A reading of 50 denotes a neutral level or balance between bullish and bearish positions
- Trends : The RSI is most useful in non-trending markets (i.e., not clearly trending up or down)
. It can remain in overbought or oversold territory for an extended period of time, depending on the levels used
In addition to providing overbought and oversold signals, the RSI can also indicate securities that may be primed for a trend reversal or corrective pullback
. However, it is essential to remember that no single indicator is perfect, and it is crucial to use the RSI in conjunction with other technical indicators and market statistics to make informed trading decisions
