The relative strength index (RSI) is very important and favorite indicator of traders. It’s a momentum indicator and it is used in technical analysis that predict the momentum of recent price changes to evaluate overbought or oversold conditions in the price of a stock. The RSI looks as an oscillator and can have a range from 0 to 100.
If value of RSI is at 70 or above, It means that a stock is becoming overbought or overvalued and stock may reverse the trend (consolidation or correction) in price. If RSI reading is near by 30 or below indicates an oversold or undervalued condition and stock may reverse the trend.
Key Points
- The relative strength index (RSI) is a popular momentum oscillator developed in 1978.
- The RSI gives the idea about stock, when stock is in overbought state or in oversold state.
- If RSI value is nearby 30 then it indicate that stock or market is in oversold state, if it is nearby 70 then it indicate that stock is overbought state.
RSI Indicator gives you clear idea about when market is in over sold position. What you need to do is just wait for market going upward.
You need to keep in mind 4 condition in mind if you are using RSI
1- If market is moving upward and RSI is also moving upward but not in overbought zone, it means it’s a buy signal.
2- If market is going upward and RSI is coming downward, it means market doesn’t have strength to further move upward, at any time market can change the direction.
3- If market is moving downward and RSI is also moving upward but not in overbought zone, it means it’s a strong sell signal.
4- If market is going downward and RSI is coming downward, it means market doesn’t have strength to further move downward, at any time market can change the direction. In this case market is consolidating its price.
