How to Use Relative Strength Index (RSI)?
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The relative strength index (RSI) is a momentum indicator utilized in technical analysis that measures the magnitude of recent price changes to guage overbought or oversold conditions within the price of a stock or other asset. The RSI is displayed as an oscillator (a line graph that moves between two extremes) and may have a reading from 0 to 100. The indicator was originally developed by J. Welles Wilder Jr. and introduced in his seminal 1978 book, New Concepts in Technical Trading Systems.
Traditional interpretation and usage of the RSI are that values of 70 or above indicate that a security is becoming overbought or overvalued and may be primed for a trend reversal or corrective pullback in price. An RSI reading of 30 or below indicates an oversold or undervalued condition.
Since RSI measures the relative strength of the underlying market, it is a technical tool that can be applied to nearly any market. However, it is commonly applied to the more liquid and larger markets like forex, stocks, and commodities.
