Relative Strength Index (RSI)
The Relative Strength Index (RSI) is a technical indicator used in the analysis of financial markets. It is intended to chart the current and historical strength or weakness of a stock or market based on the closing prices of a recent trading period. The RSI is classified as a momentum oscillator, measuring the velocity and magnitude of directional price movements. Momentum is the rate of the rise or fall in price. The RSI computes momentum as the ratio of higher closes to lower closes: stocks which have had more or stronger positive changes have a higher RSI than stocks which have had more or stronger negative changes.
History of the Relative Strength Index
The Relative Strength Index was developed by J. Welles Wilder, Jr. and introduced in his 1978 book, New Concepts in Technical Trading Systems. Wilder believed that the RSI could be used to identify overbought and oversold conditions in the trading of an asset. The RSI is a bounded oscillator, meaning that the values range between 0 and 100. A value of 70 or above is considered to be in the overbought region, while a value of 30 or below is considered to be in the oversold region. Wilder also suggested that failure swings and centerline crossovers were important signals to be aware of.
Comparison Table
| RSI | Overbought | Oversold |
|---|---|---|
| Value | 70 or above | 30 or below |
Summary
The Relative Strength Index (RSI) is a technical indicator used to measure the velocity and magnitude of directional price movements. Developed by J. Welles Wilder, Jr., the RSI is classified as a momentum oscillator and is used to identify overbought and oversold conditions in the trading of an asset. Values of 70 or above are considered to be in the overbought region, while values of 30 or below are considered to be in the oversold region. For more information about the RSI, visit Investopedia, The Balance, or Investing.com.
See Also
- Moving Average Convergence Divergence (MACD)
- Bollinger Bands
- Stochastic Oscillator
- Average Directional Index (ADX)
- On Balance Volume (OBV)
- Commodity Channel Index (CCI)
- Chaikin Money Flow (CMF)
- Price Rate of Change (ROC)
- Williams %R
- Accumulation/Distribution Line (ADL)
