Relative Strength Index (RSI)

RSI is used in Technical Analysis as an indicator of price movement momentum. The RSI graph is usually plotted beneath the price chart. As a price momentum oscillator, it oscillates between 0 and 100. Security may be considered overbought if its RSI moves above 70 and considered oversold if its RSI moves below 30. RSI also depends on general market sentiment. If the economy is soaring and the market is bullish, the RSI may be higher (40 to 90 range) than during market downturns (10 to 60 range) for a specific security.

In general, RSI can provide buy or sell signals for technical analysts. However, the RSI data collected for longer time-periods provide more certainty in predicting future price movements (Analysts need to be careful about false alarms). Technical analysts can use RSI to get information on divergence, reversals, failure swings, general trends, trend lines, double tops, double bottoms, support, and resistance lines. For example, when the RSI signals oversold security followed by higher lows, it may be an indicator of a bullish divergence. On the other hand, when the RSI signals overbought security followed by lower highs, it may be an indicator of a bearish divergence.

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