The relative strength index RSI is a momentum indicator developed by noted technical analyst Welles Wilder, that compares the magnitude of recent gains and losses over a specified time period to measure speed and change of price movements of a security.

Relative Strength Index RSI Technical Indicator Chart

It is primarily used to attempt to identify overbought or oversold conditions in the trading of an asset. The RSI provides a relative evaluation of the strength of a security's recent price performance, thus making it a momentum indicator. RSI values range from 0 to The default time frame for comparing up periods to down periods is 14, as in 14 trading days.

Traditional interpretation and usage of the RSI is that RSI values of 70 or above indicate that a security is becoming overbought or overvalued, and therefore may be primed for a trend reversal or corrective pullback in price.

Reading RSI Signals | Buy | Sell | Signals | Trade | Trending | OANDA

On the other side of RSI values, an RSI reading of 30 or below is commonly interpreted as indicating an oversold or undervalued condition that may signal a trend change or corrective price reversal to the upside. Sudden large price online stock trading paypal deposit can create false buy or sell signals in the RSI. It is, therefore, best used with refinements to its application or in conjunction with other, confirming technical indicators.

Some traders, in an attempt to avoid false signals from the RSI, use more extreme RSI values as buy or sell signals, such as RSI readings above 80 to options trading ira etrade overbought conditions and RSI readings below 20 to indicate oversold conditions.

The RSI is often used in conjunction with trend lines, as trend line support or resistance often coincides with support or resistance levels in the RSI reading. Watching for divergence between price and the RSI indicator is another means of refining its application.

Divergence occurs when a security makes a new high or low in price but the RSI does not make a corresponding new high or low value. Bearish divergence, stock market rsi price makes a new high but the RSI does not is taken as a sell signal. Bullish divergence that is interpreted as a buy signal occurs when price makes a pound euro exchange rate history chart low, but the RSI value does not.

An example of bearish divergence can unfold as follows: The RSI has bearishly diverged from the movement of price.

For more detailed information on the RSI indicator, see An Introduction To The Relative Strength Index and Relative Strength Index And Its Failure-Swing Points. Dictionary Term Of The Day.

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How to Day Trade with the RSI - Tradingsim

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