The relative strength index (RSI) is a technical indicator used in the analysis of financial IBM, Microsoft) and showed that RSI can still produce good results; however, in longer time it is usually overcome by the simple buy-and-hold strategy. 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 Traditionally, and according to Wilder, RSI is considered overbought when above 70 and oversold when below ‎Calculation · ‎Overbought-Oversold · ‎Divergences · ‎Conclusions. The "Relative Strength Index", or "RSI", indicator is a popular member of the "Oscillator" family of technical indicators.


Author: Roselyn Collins
Country: Nicaragua
Language: English
Genre: Education
Published: 5 November 2015
Pages: 777
PDF File Size: 28.97 Mb
ePub File Size: 39.34 Mb
ISBN: 867-4-53173-795-9
Downloads: 3314
Price: Free
Uploader: Roselyn Collins


The following charts show how to trade a bearish and bullish divergence. Have a look at A and B below: In this case, a confirmation for opening a long position should be used, like for example candlestick patterns or confluence with another timeframe.

The stop-loss level should be places just below the lower low on the price chart. The price made a higher high, compared to the RSI which made a lower high, thus creating a bearish divergence. On simple rule of thumb to identify these divergences exactly, is to imagine a bull and a bear.

A bearish divergence is connecting two highs on the RSI, one being the higher high and the second being the lower rsi indicator explained, and is plotted on the above the RSI as if a bear moves the RSI lower with its rsi indicator explained.

A bullish divergence is plotted below the RSI, connecting a low and the next higher low as if a bull pulls the RSI higher with its horns. Real Life Examples 1. As you can see on the chart, the second peak is higher than the first one.

Relative Strength Index (RSI)

At the same time, there is a divergence between the price chart and the RSI indicator. Please help rsi indicator explained this section by adding citations to reliable sources. Unsourced material may be challenged and removed.

June Learn how and when to remove this template message Wilder thought that "failure swings" above 70 rsi indicator explained below 30 on the RSI are strong indications of market reversals.

If it falls below 72, Wilder would consider this a "failure swing" above Finally, Wilder wrote that chart formations and areas of support and resistance could sometimes be more easily seen on the RSI chart as opposed to the price chart.

The center line for the relative strength index is 50, which is often seen as both the support and resistance line for the indicator.

RSI Indicator Explained – What is the RSI Indicator?

Even though RSI forged a new high and momentum rsi indicator explained strong, the price action failed to confirm as lower high formed. This negative reversal foreshadowed the big support break in late June and sharp decline.

rsi indicator explained Conclusions RSI is a versatile momentum oscillator that has stood the test of time. Despite changes in volatility and the markets over the years, RSI remains as relevant rsi indicator explained as it was in Wilder's days.

While Wilder's original interpretations are useful to understanding the indicator, the work of Brown and Cardwell takes RSI interpretation to a new level.


Adjusting to this level takes some rsi indicator explained on the part of the traditionally schooled chartists.

Wilder considers overbought conditions ripe for a reversal, but overbought can also be a sign of strength. Bearish divergences still produce some good sell signals, but chartists must be careful in strong trends when bearish divergences are actually normal.

Even though the concept of positive and negative reversals may seem to undermine Wilder's interpretation, the logic makes sense and Wilder would hardly dismiss the value rsi indicator explained putting more emphasis on price action.

Positive and negative reversals put price action of the underlying security first and the indicator second, which is the way it should be.

Related Post