RSI or Relative Strength Index was the first indicator that I learned and started using when I started my trading career in 2017. I still use it and I can say this is one of the best indicators that works like a magic.

RSI BASICS

RSI or Relative Strength Index is a momentum indicator that oscillates between 0 to 100 to measure the speed and change of price movements. This indicator was developed by one of the greatest traders of all time J. Welles Wilder. He developed this masterpiece after years of experiment and research. Now, this indicator is one of the most popular trading indicators that has been featured in a number of articles,  interviews and books. You can find his original masterpiece in the 1978 book ‘New Concept in the technical trading system’.

The RSI uses the two zones oversold and overbought zone with RSI line that oscillates between these two zones to create buy and sell opportunities.

Talking about the calculation of RSI, It uses a 14-period average.  which is a default period suggested by Wilder in his book. The formula for RSI is.

RSI = 100 – 100 / 1 + Average.

Average = Average Gain / Average Loss.

KEY TAKEAWAYS

  • RSI is one of the most popular trading indicators developed by J. Welles Wilder in 1978.

 

  •  This Indicator oscillates between the overbought and oversold regions to create buy and sell signals.

 

  • You need to make a buy trade at the oversold region and similarly, make a sell trade at the overbought region.

 

  • This indicator is highly sensitive to market fluctuations and may face RSI divergence multiple times If you trade in the short time frame chart.