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Relative Strength Index (RSI)

RSI is one of the most popular technical analysis indicators, the Relative Strength Index (RSI) is an oscillator that measures current price strength in relation to previous prices.

The Relative Strength Index measures the speed and change of price movements. RSI oscillates between zero and 100.

1.RSI is considered overbought when above 70 and oversold when below 30.
2 .RSI is based on closing prices.


The RSI is used to:
1 . Generate buy and sell signals
2 . Show overbought and oversold conditions
3 . Confirm price movement
4 . Warn of potential price reversals through divergences





RSI Buy Signal
Buy when the RSI crosses above the oversold line (30).In the chart given below the buy signal has generated when it crossed the line of 30 from top.

RSI Sell Signal
Sell when the RSI crosses below the overbought line (70). In the chart given below the sell signal has generated when it crossed the line of 70 from down.





Divergences
According to Wilder, divergences signal a potential reversal point because directional momentum does not confirm price.

A bullish divergence (spreading from one point to another) occurs when the underlying security makes a lower low and RSI forms a higher low. RSI does not confirm the lower low and this shows strengthening momentum.

A bearish divergence forms when the security records a higher high and RSI forms a lower high.








Overbought: It means “ bought ” has exceeded its limit, so no more bought will happen now , so the price will not rise any more that is why it is the best price and time to go for SELL.

Oversold : It means “ sold ” has exceed, so no more sold will happen now that is why it is the best time and pice to go for BUY.







Higher high: Look at the chart below here “higher” means above the line of 70, and the “ high ” means the highest point of this “ higher ” of the line 70.

Lower high: Look at the chart below here “lower” means below the line of 30, and the “ high ” means the highest point of this “ lower ” of the line 30.







Higher low: Look at the chart below here “higher” means above the line of 70, and the “ low ” means the lowest point of this “ higher ” of the line 70.

Lower low: Look at the chart below here “lower” means below the line of 30, and the “ low ” means the lowest point of this “ lower ” of the line 30.











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