Relative Strength Index (RSI)

Relative Strength Index, sometimes known as RSI, is a technical analysis (TA) indicator that essentially gauges the strength and speed of market oscillations. The RSI is a momentum oscillator as a result, measuring the size and speed of market changes. J. The RSI indicator was created in the late 1970s by Welles Wilder. His objective was to develop a charting tool that would allow traders to assess a stock's performance. The approach was initially described in Wilder's book New Concepts in Technical Trading Systems. The book introduced readers to the Average True Range (ATR), Average Directional Index (ADX), and the Parabolic Stop and Reverse (also known as Parabolic SAR), in addition to the widely used RSI indicator. The RSI indicator considers the price of an asset over 14 periods when used with conventional parameters. The indicator would monitor price fluctuations based on the last 14 candles, or 14 hours on hourly charts, 14 days on daily charts, and so on, if applied to a candlestick chart. Technically, the RSI plots data on a 0-100 scale by dividing the average gain by the average loss. The RSI is a tool used by traders to identify possible overbought and oversold market circumstances. The RSI indicates an overbought condition when it is above 70. In contrast, if it dips below 30, it can be a sign that the market is oversold. The RSI indicator can also be used to look for probable price reversal points. Traders search for the so-called bullish and bearish divergences to do this. When the RSI and the asset price move in opposing directions, this is known as a bullish divergence. In other words, when the RSI produces a higher low, the market price makes a lower low. This shows that the buying pressure is escalating despite the price decrease. A bearish divergence, on the other hand, would show that there is growing selling pressure despite rising market prices. However, it should be noted that the RSI indicator's signals are not always reliable, hence traders frequently combine it with other TA tools to lower risks.