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Relative Strength Index (RSI)

Utility: Identifying Overbought / Oversold Market Levels

Standard Settings: 14 Periods

The Relative Strength Index or RSI is a momentum oscillator that is able to measure the velocity and magnitude of each directional price movements. The RSI is also known for its ability to identify overbought and oversold markets.

 

As suggested by its developer, the default RSI calculation is involving 14 periods.

□ In case of a Ranging market, when RSI is found above 70, the market is considered overbought. In case of a Strong Trending Market with downward movement the value RSI=60 is overbought level.

□ In case of a Ranging market, when RSI is found below 30, the market is considered oversold. In case of a Strong Trending Market with upward movement the value RSI=40 is oversold level.

Relative Strength Index (RSI)

Calculating RSI

■ RSI = 100 – 100 / ( 1 + RS)

Where,

RS = Average Gain / Average Loss

■ First RS calculation:

Average Gain = Summary of Gains for 14 periods / 14

Average Loss = Summary of Losses for 14 periods /14

■ Second RS calculation:

Average Gain = [(previous Average Gain) * 13 + current Gain] / Average Loss = [(previous Average Loss) * 13 + current Loss] /

■ Same procedure for the third and the subsequent RS

 

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Relative Strength Index (RSI)

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