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Relative Strength Index

RelativeStrengthIndexRelative strength index is  a very effective investing tool.It is a very important tool to measure the pace of the price change of the stocks.Technical analysts give it  lots of importance while analyzing the market or an individual stock.RSI works best when it is used for the 14-day trading session.It helps traders  to identify the enormity of the gains or losses made by them.By using this tool stock traders can easily get an overall idea about the general trend of the stock market.Relative strength index is calculated by the following formula :

RSI= 100-100/(1+RS*)

Relative strength index was created by J.Welles Wiledeer in 1978.This concept was used by him in his most famous book named ” New concepts in technical trading systems”. Relative strength index  is still considered as the most famous and effective oscillator indexes.J Wlles also used the Parabolic SAR, Average True Range and the Directional Movement Concept (ADX).

Relative strength index moves between the scale of 0 and 100.It has a two points of 30 and 70.This scale is used to measure the oversold and overbought point.According to the experts, RSI is considered oversold when it is under 30 and overbought when it crosses the 70.

 

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About Emaad Qureshi