Stock Charting: Relative Strength Index

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Relative Strength Index

Relative Strength Index (RSI) measures internal strength of the securities price moves. RSI was first introduced by Welles Wilder in 1978. There are several methods in analyzing RSI: RSI usually tops at a level of 70 and bottoms at 30. High absolute value of RSI (>95) clearly shows that the security has been overbought and a price reversal may take place. RSI also sometimes better shows chart formations like head-and-shoulders that may not be visible on the chart from the first glance. RSI may be used in analyzing support levels and breakouts.

Typically RSI generates a buy signal when it has fallen to a low level and is coming upward and a sell signal when it reaches a certain high level.

Relative Strength Index has one parameter: n - number of days, which is usually equal to 9.

where

and

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