Relative Strength Index - RSI

The Relative Strength Index (RSI) is a useful and popular momentum oscillator, it measures the magnitude of gains over a given time period against the magnitude of losses over that period. It was first introduced by Welles Wilder in an article in Commodities (now known as Futures) Magazine in June, 1978.

Interpretation
When Wilder introduced the RSI, he recommended using a 14-day RSI, but the 9-day and 25-day RSIs also gained popularity among traders. The strength and weakness of the market can be measured by RSI and it's always refer to as Overbought or Oversold.

Overbought or Oversold
A high RSI (above 70), suggests an Overbought or Top. On the other hand, a low RSI (below 30), suggests an Oversold or bottom as in the chart above.

Level 80 and 20 can also be used but it's all depends on the sentiment of the market, some traders suggest to use level 80 as overbought during bull market and level 20 as oversold during bear market.

Level 30 and 70 Crossovers
When the stock crosses level 30 from above it shown that the stock is oversold. Most traders will monitor the stock closely and wait until it break through 30 from the bottom as a confirmation as a bullish signal.

When the stock crosses level 70 from the bottom it shown that the stock is overbought. Most traders will monitor it closely and wait until it break through 70 from the top as a confirmation as a bearish signal.

We have list of stocks that we scan for RSI's overbought, oversold, Level 30 crossover and Level 70 crossover, and we will post the results here everyday to ease your scanning process. --> Here

Other Signals given by RSI:

Chart Formations
RSI often forms chart patterns that may or may not be seen on the price chart, such as head and shoulders, double top or triangles.

Failure Swings
When RSI surpasses a previous high or falls below a recent low it was also known as support or resistance penetrations or breakouts.

Support and Resistance
RSI can shows support and resistance level as in the price chart and sometimes it's clearer than the price chart.

Divergences
Divergence occur when the price makes a new high but the RSI fails to exceed its previous high.