Relative Strength Index Indicator – Analysis and Forecast – December 4, 2023
RSI Indicator Explained – What is RSI Indicator?
The “Relative Strength Index” or “RSI” indicator is a popular member of the “oscillator” family of technical indicators. J. Welles Wilder created RSI to measure the relative changes that occur between rising and falling closing prices. Traders use indices to determine overbought and oversold conditions and provide valuable information when setting entry and exit levels in the forex market.
RSI is classified as an “oscillator” because the resulting curve fluctuates between 0 and 100. The indicator typically has lines drawn across both the “30” and “70” values as warning signals. Values above “85” are interpreted as a strong overbought condition or “sell” signal, while a drop below “15” generates a strong oversold condition or “buy” signal.
RSI formula
The RSI indicator is common in Metatrader4 trading software and its calculation formula sequence includes the following simple steps:
Select a predetermined period “X” (the standard value is “14”, but values ”8″ or “9” tend to be more sensitive).
“RS” calculation = (Average of “X” period up closes/“X” period down average)
RSI = 100 – (100/(1 + RS))
The software program performs the necessary calculations and generates the RSI indicator as shown in the bottom part of the following chart.
The RSI indicator consists of a single fluctuation curve.
If there is a large spike in price movement, the RSI indicator may send incorrect signals. It is wise to supplement RSI with other indicators. Wilder also believed that the strength of an indicator is revealed when its value differs from the prevailing price in the market.
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