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Indicator:

RSI

The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and magnitude of price changes over a specified period. It helps traders identify overbought or oversold conditions, providing signals that can indicate potential trend reversals. The RSI's ability to evaluate trend strength makes it an essential tool for refining entry and exit points in trading strategies, allowing traders to make well-informed decisions in both trending and range-bound markets.

Relative Strength Index (RSI): Analysis, Calculation, and Trading Application


Introduction to RSI


Relative Strength Index (RSI) is a popular technical analysis indicator used to evaluate the strength or weakness of a financial asset based on its recent price movements. Developed by J. Welles Wilder, it is classified as an oscillator, meaning its values oscillate within a fixed range (from 0 to 100).


Purpose of RSI


RSI is used to identify overbought or oversold conditions in a market, which can indicate potential trend reversals. This oscillator is particularly useful for predicting turning points and assessing whether an asset is excessively bought or sold.


How to Calculate RSI

The calculation of RSI involves several steps:

Measurement Period: The standard period for calculating RSI is 14 days, but it can be adjusted based on the analyst's preference.

Gains and Losses: Calculate the average gain and average loss over the specified period.

Relative Strength (RS): Calculate RS as the ratio of the average gain to the average loss.


RSI: Based on RS, calculate RSI using the following formula:


For example, if the average gain is 1.5 and the average loss is 0.5, RS is 3. Therefore, the RSI is:


Trading Based on RSI


  1. Overbought and Oversold Conditions:

    • RSI above…

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