What is Relative Strength Index (RSI)?
There is a wide variety of technical indicators of which the main aim is to make your life easier and help you to become a better trader.
Technical indicators are mainly used to identify the market trends as trading against the market is rarely beneficial. They are good for getting more information about price tendencies, can give us more understanding of the context, help to see the bigger picture, and ensure a higher probability of the right trading move. In this article we will talk about RSI (Relative Strength Indicator)
What is RSI?
Relative Strength Index (RSI) is a momentum indicator. It was developed by J.Welles Wilder in 1978 and measures the speed and change of price movements. It plots the relative strength of the price compared to previous prices and can provide you with signals about bullish and bearish price momentum.
RSI can help you to have an overview of recent price levels and figure out if an asset is currently being overbought (overvalued and potentially pricy) or oversold (undervalued and as a likely consequence cheaper than usual)
How does RSI work?
RSI is calculated using average price gains and losses over a given period of time. The default time period is 14 periods, with values bound from 0 to 100. This formula is used to determine if an asset is overbought or oversold
Formula: RSI = 100 — [100 / ( 1 + (Average of Upward Price Change / Average of Downward Price Change ) ) ]
Normally the RSI is displayed as a line graph that moves between two extremes — from 0 to 100.
To find this tool on NiceX TradeView simply click on the “indicators” button and search for RSI (Relative Strength Index)
This indicator tells us how big the move is and how strong the price change is.
Normally if the RSI goes above 70, the asset is considered to be overbought and being overvalued. When the RSI drops below 30 it indicates that the asset is being oversold and the price is lower compared to the previous period of time.
There are different ways you can use RSI to help your trading decisions. For example if you are a long term hodler you probably want to accumulate some bitcoin when the RSI goes below 30. Or you can use RSI for determining the trend strength and spotting potential reversals.
Reading the signs
Like many other technical indicators RSI signals are most reliable when they conform to the long-term trend.
It’s important to remember that true reversal signals are rare and sometimes they are not easy to separate from false alarms.
A false positive, for example, would be a bullish crossover followed by a sudden decline in a stock. A false negative would be a situation where there is a bearish crossover, yet the stock suddenly accelerated upward.
It’s also important to remember that even though indicators can help us to understand the market trends better, they cannot predict the future. Gaining experience using indicators and combining different tools in order to get more information can help you to avoid being a victim of misleading signals these tools can occasionally produce.
Learning to trade with indicators can be a complex process. If the RSI indicator appeals to you, you can research it even further.
The more you will practice, the more comfortable you will become with your trading. Navigate to NiceX Exchange, start practicing and gain your confidence!
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The original article is here: https://www.nicex.com/blog/post/what-is-(rsi)-relative-strength-index