RELATIVE STRENGTH INDEX

• The relative strength index (RSI) is a popular momentum oscillator

developed in 1978.

• The RSI provides technical traders signals about bullish and bearish price
momentum, and it is often plotted beneath the graph of an asset's price.

• An asset is usually considered overbought when the RSI is above 70%

and oversold when it is below 30%.
• Relative Strength Index (RSI)
• Rate of change (ROC)
• Stochastics.
• Commodity Channel Index (CCI)
• Moving average convergence/divergence (MACD)

MOMENTUM INDICATORS
FORMULA FOR RSI
• Overbought refers to a security with a price that's higher than its intrinsic value.
• Many investors use price-earnings (P/E) ratios to determine if a stock is
overbought, while traders use technical indicators, like the relative strength
index (RSI).
• Fundamental analysis can also be used to compare an asset's market price to its
predicted value based on financial statements or other underlying factors.
• Ultimately, overbought is a subjective term. Since traders and analysts all use
different tools, some may see an overbought asset while others see an asset
that has further to rise.

OVERBOUGHT
• Oversold is a subjective term. Since traders and analysts all use different tools,
some may see an oversold asset while others see an asset that has further to
fall.
• Oversold conditions can last for a long time, so prudent traders wait for the
price to base out and start to move higher before buying.
• Oversold conditions are identified by technical indicators such as the relative
strength index (RSI) and stochastic oscillator, as well as others.
• Fundamentals can also highlight an oversold asset by comparing current values
to prior values in terms of price/earnings (P/E) and forward P/E, for example.

OVERSOLD
• RSI falls into oversold territory.
• RSI crosses back above 30%.
• RSI forms another dip without crossing back into oversold territory.
• RSI then breaks its most recent high.

RSI SWING REJECTIONS

• The RSI compares bullish and bearish price momentum and displays the results in an
oscillator that can be placed beneath a price chart. Like most technical indicators, its
signals are most reliable when they conform to the long-term trend.

• True reversal signals are rare and can be difficult 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 accelerated suddenly upward.

• Since the indicator displays momentum, it can stay overbought or oversold for a
long time when an asset has significant momentum in either direction. Therefore,
the RSI is most useful in an oscillating market where the asset price is alternating
between bullish and bearish movements.

LIMITATION OF RSI
SUMMARY