Relative Strength Index (RSI )is a technical analysis momentum indicator used by traders /investors to identify extent of price movements and general trend in financial securities.
The RSI indicator on the price chart usually has a single line (RSI line).
RSI value ranges between 0 and 100 at any given point of time and these are calculated in two steps using average price gains and losses over a default 14 day time period.
How to interpret RSI ?
If RSI value > 70 then the security is considered overbought and oversold if RSI < 30.
How to confirm trends using RSI ?
Security’s price is considered to be in uptrend if its RSI value is between 40-90 and downtrends if it is ranging between 10-60.
How to derive Trading signals from RSI Indicator ?
Traders derive RSI signals based on RSI values, divergence and also Bullish / Bearish swing rejection.
Divergence happens when there is a difference between the RSI line and the price action of the security.This is considered as a very strong signal.
Sentiment Vs RSI value mapping
|Bullish signal||The RSI line is crossing below or hovering around the 30-40 RSI range.|
|Bearish signal||The RSI line is crossing above 70 or hovering around the 70-90 range.|
Sentiment Vs Divergence mapping
|Bullish signal||Price of the security makes lower lows and RSI makes higher lows.|
|Bearish signal||Price of the security makes higher lows and RSI makes lower lows|