Relative Strength Index (RSI) is a well known and much used
momentum indicator. It was invented by J. Welles Wilder Jr.,
a great technical analyst.
RSI compares the magnitude of a stock or index’s recent gains
to the magnitude of it’s recent losses and that information is
turned into a number that ranges from 0 to 100. A single
parameter is used, the number of time periods for the calculation.
14 periods is recommended by Wilder.
Common practical use of RSI in stock market timing is to measure
the underlying strength of the market and to determine if it’s
getting overbought or oversold. Wilder’s own recommendation was to
use 70 and 30 levels, to indicate an overbought and oversold market,
respectively. If RSI rises above 30 it’s considered bullish for the
stock or index. If the RSI falls below 70, it’s a bearish sign.
Bullish
