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Basics of Trading Course
Module 1: Technical Analysis Basics
Module 2: Chart Patterns
Module 3: Technical Indicators
Module 4: Candlestick Chart Formations
Module 5: The Psychology of Trading
Module 6: Money Management
Module 7: Position Sizing
Module 8: Intro to Fundamental Analysis
Module 9: Economic Releases that Move the Markets
Module 9a: Pulling It All Together
Forex Trading Course
Module 1: The Basics of Forex Trading
Module 2: The Logistics of Forex Trading
Module 3: The Logistics of Forex Trading Part 2
Module 4: What Moves the Forex Market
Module 5: Trading the US Dollar
Module 6: Trading the Euro
Module 7: Trading the Japanese Yen
Currency Futures
Market Terminology
Options
Posting a Forum Chart
Trade Execution
Trading Fundamentals
Economic Indicators
Flows/Central Banks
Trading Technicals
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Category Name: Trading Technicals

» Sub-Category Name: Charting

Relative Strength Index

By: vss2000.com

Relative Strength Index ( RSI )

The Relative Strength Index (RSI) is one of the most popular overbought/oversold (OB/OS) indicators. The RSI is basically an internal strength index which is adjusted on a daily basis by the amount by which the market rose or fell. It is most commonly used to show when a market has topped or bottomed. A high RSI occurs when the market has been rallying sharply and a low RSI occurs when the market has been selling off sharply. The RSI is expressed as a percentage, and ranges from zero to 100%.

One characteristic of the RSI is that it moves slower when it reaches increased overbought or oversold conditions, and then snaps back very quickly when the market enters even a mild correction. This brings the RSI back to more neutral levels and indicates that the price trend may be able to resume.

When Wilder introduced the RSI, he recommended using a 14-day RSI. Since then, the 9-day and 25-day RSIs have also gained popularity. The fewer days used to calculate the RSI, the more volatile the indicator.

The RSI is a price-following oscillator that ranges between 0 and 100. A popular method of analyzing the RSI is to look for a divergence in which the security is making a new high, but the RSI is failing to surpass its previous high. This divergence is an indication of an impending reversal. When the RSI then turns down and falls below its most recent trough, it is said to have completed a "failure swing." The failure swing is considered a confirmation of the impending reversal.

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