Relative Strength Index

Introduction to Relative Strength Index (RSI)

The Relative Strength Index (RSI) is a price-following oscillator that ranges from 0 to 100. It was introduced by Wilder, who initially recommended using a 14-day RSI. However, the 9-day and 25-day RSIs have also become popular.

Analyzing RSI for Divergence

One popular method of analyzing the RSI is to look for divergence. This occurs when the security makes a new high, but the RSI fails to surpass its previous high. Divergence suggests an impending reversal. When the RSI turns down and falls below its most recent trough, it completes a failure swing. This failure swing confirms the impending reversal.

Using RSI for Chart Analysis

The Relative Strength Index can be used for chart analysis in various ways. It provides insights into overbought and oversold conditions, as well as potential trend reversals. Traders can utilize RSI to identify entry and exit points, assess the strength of a trend, and determine potential price targets.