Scribd
Upload
3 views2 pages

RSI Indicator Guide

The Relative Strength Index (RSI) is a momentum oscillator that ranges from 0 to 100, with values above 70 indicating overbought conditions and below 30 indicating oversold conditions. Traders use RSI to identify potential price reversals, confirm trends, and spot divergences, often in conjunction with other indicators like MACD and moving averages. Customization of the RSI period can enhance its effectiveness, but caution is advised in volatile markets to avoid false signals.

Uploaded by

nuradansaa007
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
3 views2 pages

RSI Indicator Guide

The Relative Strength Index (RSI) is a momentum oscillator that ranges from 0 to 100, with values above 70 indicating overbought conditions and below 30 indicating oversold conditions. Traders use RSI to identify potential price reversals, confirm trends, and spot divergences, often in conjunction with other indicators like MACD and moving averages. Customization of the RSI period can enhance its effectiveness, but caution is advised in volatile markets to avoid false signals.

Uploaded by

nuradansaa007
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

How to Use the RSI (Relative Strength

Index) Indicator
Understanding RSI Basics
 Formula:
RSI = 100 - (100 / (1 + RS)), where RS = Average Gain over N periods / Average Loss
over N periods
 Default period (N) = 14
 Value Range: RSI oscillates between 0 and 100

Interpreting RSI Values


 RSI > 70: Overbought – Price may decline
 RSI < 30: Oversold – Price may rise
 RSI around 50: Neutral or no clear trend

How to Use RSI in Trading


 Identify Overbought/Oversold Conditions:
- RSI > 70: Overbought
- RSI < 30: Oversold
 Spotting Divergences:
- Bullish Divergence: Price makes a lower low, RSI makes a higher low
- Bearish Divergence: Price makes a higher high, RSI makes a lower high
 Confirming Trends:
- Uptrend: RSI stays above 40–50
- Downtrend: RSI stays below 50–60
 Using RSI with Other Indicators:
- Combine with moving averages, MACD, or support/resistance levels for confirmation

Customizing RSI Settings


 Default = 14-period RSI (commonly used on daily charts)
 Shorter periods (e.g., 7): More sensitive, more false signals
 Longer periods (e.g., 21): Smoother, fewer signals
 Adjust the period based on market volatility and time frame

Tips for Effective RSI Use


 Works best in range-bound markets
 Watch for RSI 'failure swings'
 Be wary of false signals in volatile markets – use stop-loss orders

Example Use Case


 Stock is trading at a peak
 RSI = 80 → Overbought
 A bearish divergence is spotted
 Combine with resistance level to plan a short trade

Summary
 Indicator Type: Momentum Oscillator
 Key Levels: 70 (overbought), 30 (oversold)
 Best for: Spotting reversals, confirming trends
 Combine With: MACD, Moving Averages, Price Patterns
 Common Mistake: Using RSI alone without confirmation

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy