RSI( Relative Strength Index)
Relative Strength Index was developed by J.Welles Wilder.
Relative strength index measures the speed and change of price movements.
Relative strength index ranges between 0 and 100.
Relative strength index is based on oversold and overbought as well as divergence.
According to Wilder,RSI is considered to be overbought when above 70 and oversold when below 30.
RSI has a time default of 14 period.
When below 30,it tells the trader that it is time to enter a buy position while when it is above 70,it tells the trader to enter a sell position.
RSI is calculated using the following formulae;
RSI= 100 - 100
1+RS
where
RS= Average Gain/ Average Loss
The average gain and average loss are the basic component of RSI.
Relative strength index ranges between 0 to 100.Since it is an oscillator and ranges between 0 to 100,it therefore has an oscillator between 30 to 70.When the RSI is between 30 to 70,the positions opened by the trader will not have any effect in the direction of the market thus the trader should not close his or her positions at this range.When the RSI falls below 30,then that will be an indicator of an oversold market thus the market will reverse to an upward direction thus signaling the trader to close any sell position and open a buy position while when it is above 70,that will be an indicator of an overbought market thus the market will reverse to a downward direction thus signaling the trader to close any buy position and open a sell position This is indicated as from the candle sticks chart below
From the candle sticks chart above,there are 3 points,point A,B and C.Point A represents an oversold point while point B represents an overbought point. Point C is the RSI point.
At point A,the relative strength index has fallen below 30 thus an indication of an oversold market at that point.This will signal the trader to close any sell position and open a buy position since the market is starting to move upwards at that point.
At point B,the relative strength index has risen above 70 thus an indication of an overbought market at that point.This will signal the trader to close any buy position and open a sell position since the market is starting to move downwards.
Relative strength index measures the speed and change of price movements.
Relative strength index ranges between 0 and 100.
Relative strength index is based on oversold and overbought as well as divergence.
According to Wilder,RSI is considered to be overbought when above 70 and oversold when below 30.
RSI has a time default of 14 period.
When below 30,it tells the trader that it is time to enter a buy position while when it is above 70,it tells the trader to enter a sell position.
RSI is calculated using the following formulae;
RSI= 100 - 100
1+RS
where
RS= Average Gain/ Average Loss
The average gain and average loss are the basic component of RSI.
Relative strength index ranges between 0 to 100.Since it is an oscillator and ranges between 0 to 100,it therefore has an oscillator between 30 to 70.When the RSI is between 30 to 70,the positions opened by the trader will not have any effect in the direction of the market thus the trader should not close his or her positions at this range.When the RSI falls below 30,then that will be an indicator of an oversold market thus the market will reverse to an upward direction thus signaling the trader to close any sell position and open a buy position while when it is above 70,that will be an indicator of an overbought market thus the market will reverse to a downward direction thus signaling the trader to close any buy position and open a sell position This is indicated as from the candle sticks chart below
From the candle sticks chart above,there are 3 points,point A,B and C.Point A represents an oversold point while point B represents an overbought point. Point C is the RSI point.
At point A,the relative strength index has fallen below 30 thus an indication of an oversold market at that point.This will signal the trader to close any sell position and open a buy position since the market is starting to move upwards at that point.
At point B,the relative strength index has risen above 70 thus an indication of an overbought market at that point.This will signal the trader to close any buy position and open a sell position since the market is starting to move downwards.
Comments
Post a Comment