RSI Indicator#
Relative Strength Index (RSI)
- Measure the strength between the recent buying and selling forces in the market by the recent changes in price movements. Therefore, it is also called the Relative Strength Index, a momentum technical analysis indicator that evaluates the extent of recent price changes to assess overbought or oversold conditions and determine buying and selling opportunities.
- RSI represents the strength of gains, with the midline at 50% as the boundary between bullish and bearish forces. Going long, the higher, the better. The boundaries are set at 70% and 30%, respectively, where RSI fluctuates within this range. Above 70% is considered overbought (selling point), below 30% is oversold (buying point).
RSI, like the MA indicator, has a lagging drawback where the latest RSI value does not appear until the last candle is closed. Another drawback is the dulling effect: being in overbought/oversold territory for an extended period, making it ineffective for market assessment.
In a one-way market, breaking below 50 indicates a pullback, which is a good buying point.
- Divergence:
Bearish divergence: Price rises but RSI weakens, indicating a weakening of bullish strength, a weakening uptrend, and a potential upcoming decline, to some extent, a sell signal.
Bullish divergence: Price falls but RSI strengthens, indicating an increase in bullish strength, a weakening downtrend, and a potential upcoming rise, to some extent, a buy signal.