What Does Relative Strength Index (RSI) Mean?
A technical momentum indicator that compares the magnitude of recent gains to that of recent losses in an attempt to determine overbought and oversold conditions of an asset. It is calculated by using this formula:
As can be seen in the following chart, the RSI ranges from 0 to 100. An asset is deemed to be overbought once the RSI approaches a level of 70, meaning that the asset may be getting overvalued and is a good candidate for a pullback. Similarly, if the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore is likely to become undervalued.
Investopedia explains Relative Strength Index (RSI)
A trader using RSI should be aware that large surges and drops in the price of an asset will affect the RSI by creating false buy and sell signals. The RSI is best used as a valuable complement to other stock-picking tools.
Related Terms:
• Bear Market
• Downtrend
• Momentum
• Oversold
• Trend Analysis
How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content.
| ?Page tools | ||
|---|---|---|
|