What is the RSI indicator?
What is the RSI (Relative Strength Indicator) indicator?
Relative Strength Indicator (RSI) is a momentum oscillator used by numerous technical traders to discover the speed and change in price movements. RSI stands for Relative Strength Index. RSI is a leading Indicator, which has a fixed oscillating range of 0 – 100. RSI below 30 considered to be oversold and above 70 overbought. Trading with RSI standalone is not a good strategy. Some traders use RSI to find divergence to find the best possible entry.
Calculation of RSI
But why you should know the calculation of RSI?
As technical traders what’s going on behind it doesn’t matter, but for some people more likely who like to make bots and auto traders for automatic trading have to know these things to make something from that or modify it. Feel free to live the example section, if you’re a technical trader.
So, to calculate average gain/loss, we have to the first average gain or loss. So, assuming the default value of RSI is 14, which is obvious everywhere.
First Average Gain = the total sum of gain in the previous 14 periods / 14
Frist Average Loss = the total sum of loss in the previous 14 periods / 14
As of now, we have calculated 1st gains/ losses, then we have to calculate the Average Gain and Average Loss.
Average Gain = {(Previous Average Gain * 13) + Current Average Gain} / 14
Average Loss = {(Previous Average Loss * 13) + Current Average Loss} / 14
Live Example
Overbought Condition:
Oversold Condition:
Note: Taking entry-exit using standalone RSI is not a good strategy while combining with other strategy and price action techniques will have better results. Always Trade indicators wisely with proper risk management else your trading funds will always at high risk.
