Relative Strength Index (RSI)

The Relative Strength Index (RSI) is a momentum oscillator used in technical analysis to measure the speed and change of price movements. It helps identify overbought or oversold conditions in a stock. What is RSI? • RSI is a value that ranges from 0 to 100. • Typically calculated over a 14-day period. • Invented by J. Welles Wilder. How to Interpret RSI Values • Above 70: Stock is considered overbought — may be due for a pullback. • Below 30: Stock is considered oversold — may be due for a bounce. • Between 30-70: Neutral zone — no extreme conditions. Key Signals 1. Overbought Signal o RSI > 70 may suggest the stock has risen too fast and could correct soon. 2. Oversold Signal o RSI < 30 may indicate the stock has fallen too quickly and might rebound. 3. Bullish Divergence o Price makes a lower low, but RSI makes a higher low. o Indicates potential upward reversal. 4. Bearish Divergence o Price makes a higher high, but RSI makes a lower high. o Indicates potential downward reversal. Practical Uses of RSI • Helps time entries and exits, especially in momentum trades. • Used to confirm breakouts and reversals. • Often combined with moving averages or trendlines. Limitations • RSI can stay overbought or oversold for extended periods in strong trends. • Best used with other indicators for confirmation.