Relative Strength Index

The Relative Strength Index (RSI) is a technical analysis tool used to measure the strength of a stock's price trend. It compares the magnitude of a stock's recent gains to its recent losses over a specified period of time, which is typically 14 periods.

The RSI indicator is calculated by dividing the average gain of the stock over the specified period by the average loss over the same period. The resulting value is then plotted on a scale ranging from 0 to 100.

When the RSI is above 70, the stock is considered overbought, and a potential reversal or correction in the price trend may be forthcoming. When the RSI is below 30, the stock is considered oversold, and a potential rebound or rally in the price trend may be forthcoming.

This strategy is based on an absolute values of Relative Strength Index (RSI). Typically when RSI reaches level of 80 it is considered that a security is overbought and when RSI is hitting 20 it is considered that a security is oversold. The current strategy does the following : it generates a buy signal when RSI is falling below a set limit a (a=20 in the example) and is generating a sell signal when RSI reaches a sell limit b (b=80 in the example)

Formula

IF RSI(m) > v
THEN GO SHORT
ELSE
IF RSI(m)< w
THEN GO LONG
where RSI is relative strength index;
and v > w; e.g. v = 80 and w = 20

Stock Research Links

T CB KEY EXR USB PPG PFG AFL RNR LIN DCI FITB NUS

< Back to Stock Predictor Site

Order >