Relative Strength Index (RSI)

[ellliottt]

Introduction

 

 

Developed 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 100. Traditionally, and according to Wilder, RSI is considered overbought when above 70 and oversold when below 30. Signals can also be generated by looking for divergences, failure swings and centerline crossovers. RSI can also be used to identify the general trend.

 

RSI is an extremely popular momentum indicator that has been featured in a number of articles, interviews and books over the years. In particular, Constance Brown's book, Technical Analysis for the Trading Professional, features the concept of bull market and bear market ranges for RSI. Andrew Cardwell, Brown's RSI mentor, introduced positive and negative reversals for RSI. In addition, Cardwell turned the notion of divergence, literally and figuratively, on its head.

 

Wilder features RSI in his 1978 book, New Concepts in Technical Trading Systems. This book also includes the Parabolic SAR, Average True Range and the Directional Movement Concept (ADX). Despite being developed before the computer age, Wilder's indicators have stood the test of time and remain extremely popular.

 

 

 

 

Calculation

100

RSI = 100 - --------

1 + RS

 

RS = Average Gain / Average Loss

 

 

To simplify the calculation explanation, RSI has been broken down into its basic components: RS, Average Gain and Average Loss. This RSI calculation is based on 14 periods, which is the default suggested by Wilder in his book. Losses are expressed as positive values, not negative values.

 

The very first calculations for average gain and average loss are simple 14 period averages.

 

•First Average Gain = Sum of Gains over the past 14 periods / 14.

•First Average Loss = Sum of Losses over the past 14 periods / 14

The second, and subsequent, calculations are based on the prior averages and the current gain loss:

 

•Average Gain = [(previous Average Gain) x 13 + current Gain] / 14.

•Average Loss = [(previous Average Loss) x 13 + current Loss] / 14.

Taking the prior value plus the current value is a smoothing technique similar to that used in exponential moving average calculation. This also means that RSI values become more accurate as the calculation period extends. SharpCharts uses at least 250 data points prior to the starting date of any chart (assuming that much data exists) when calculating its RSI values. To exactly replicate our RSI numbers, a formula will need at least 250 data points.

 

Wilder's formula normalizes RS and turns it into an oscillator that fluctuates between zero and 100. In fact, a plot of RS looks exactly the same as a plot of RSI. The normalization step makes it easier to identify extremes because RSI is range bound. RSI is 0 when the Average Gain equals zero. Assuming a 14-period RSI, a zero RSI value means prices moved lower all 14 periods. There were no gains to measure. RSI is 100 when the Average Loss equals zero. This means prices moved higher all 14 periods. There were no losses to measure.

 

 

 

[bloger90]

You can identify over bought and oversold situation using RSI. When ever RSI>70 is overbought and RSI<30 is oversold. Ideal to buy when the RSI line cross the RSI 30 level from below . RSI divergence and convergence is also used to identify reversals in trend. When the RSI is converging it means trend can change from bullish to bearish. Similarly when the RSI is diverging it means trend can change from sell to buy

[standart]

there is too many false signal if we entry in based overbought or oversold signal of RSI. the best thing is put 50 median horizontal line in RSI and wait the price cross 50 median line. this is the best entry point. for exit point, we need other indicator that can show it early than RSI.

[adnan007]

RSI is another easy to use technical indicator which works simply fine for me. I use RSI with Stoch and MACD and the accuracy level of my trades becomes huge... Moreover, RSI also helps us to know when the markets are oversold or overbought which helps us to take benefit to earn some extra pips out from the retracement of the particular pair...

[ermaniso2011]

the problem with RSI is it does not always give the right signal for buying or selling but will only give idea if it is oversold or overbought.it does not mean when it is overbought then we can sell sometimes it will keep on stay as overbought thta is why RSI cant be used alone before deciding to open a trade.

[rexway]

I normaly wait for the signal of this indicator as follows,rsi>80over boght rsi<25 oversold with this i hardly get failure with this indicator,I also combin it wit mfi

[adnan007]

the problem with RSI is it does not always give the right signal for buying or selling but will only give idea if it is oversold or overbought.it does not mean when it is overbought then we can sell sometimes it will keep on stay as overbought thta is why RSI cant be used alone before deciding to open a trade.

 

Using RSI without the combination of other indicators does give false signals a few times but looking at it overall, if gives quite accurate signals specially when we take a position keeping the trend of the currency pair on our side. I suggest you to try different RSI setting and see which one suits your trading the best.

[ganthiraj]

I would suggest staying at 1hr or higher time frame. Keep in mind, more signals does not always mean more pips.

 

There is an alert device in the trading station which can send an visual and audio alert to your screen when the MACD or RSI crosses.

 

From the dealing rates window, select CHARTS -> SIGNALS -> ADD SIGNAL. Then select the indicator you are interested in from below.

[ATSATS]

@standart if you want to get all time 100% accurate signal providing indicator then i will say you especially NO. but some indicator give market condition and rsi is one of them. when market is in a oversold position then rsi take place in lower or lowest and when market is in a overbought position then rsi take place in upper. so from this indicator we can get oversold and overbought position.

[surya77]

RSI or relative strength index is an indicator used to measure market saturation. RSI has a scale of 0-100.  according to the manufacturer, the market is said to be overbought (overbought) if it is worth the RSI above 70. And oversold if valued under 30.

[tray22]

Yeah that is good and favourit this indicator give ne the market signal without problem so it is good and well organize if a trader need to move from up to up with this indicator but you must be sure that proper way to interpret the indicator is been fixed in place for proper

[MaX!CaSa]

RSI has a scale of 0-100.  according to the manufacturer, the market is said to be overbought (overbought) if it is worth the RSI above 70. And oversold if valued under 30