The Relative Strength Index (RSI) is a momentum oscillator used in technical analysis that measures the speed and change of price movements of a security. The index is used to identify overbought or oversold conditions in the trading of a security.
RSI is a scale from 0 to 100 and generally, when RSI rises above 70, it may indicate that the stock is becoming overbought and overvalued and might be primed for a trend reversal or corrective price pullback. Conversely, if the RSI drops below 30, it indicates an oversold condition and suggests an upward trend may be nearing.
The RSI is calculated using average price gains and losses over a defined period of trading sessions, typically 14. In addition to identifying potential buy and sell levels, the RSI can also be used to confirm whether the current trend is strong. For instance, if the price is showing an upward trend and the RSI is above 50 and rising, it helps confirm that the bullish trend is strong.
Remember, while the RSI can provide valuable insights, it should not be used as the sole reference for buying and selling decisions, but instead in conjunction with other technical analysis tools.
