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Why You Should Learn About the RSI Indicator?

  • April 2014
  • Posted By Ninoslav

RSI indicator’s primary function is to analyse the running value and the historical data value of a particular group of stocks. A comparison is dependent upon the closing prices of the current trading scenario and function of this indicator is similar to the momentum oscillator. Usually RSI indicator will focus on accurate measurement of velocity and multidirectional price shifts.

In a financial market, momentum is defined as a price increase or decrease in standardised units.  RSI indicators are very useful in calculating momentum in terms of the high-low closes ratio. In simple terms, stocks which have seen more positive surges in their recent history can have higher RSI indication than stocks which have seen a series of negative movements recently.

What is the scale and time frame of Relative Strength Index?
RSI value is calculated mostly on a time frame of two weeks and the scale used ranges from 0 to 100. The high level is plugged at 70 and the low level is plugged at 30. Actual structure and framework for these indicators were developed by Mr. J Welles Wilder in1978. You can read and understand about concepts in a book titled New Concept In financial Trading. A RSI is deemed to be one of the most commonly used RSI indicator in the financial market.

A calculation of the RSI demystified
An upward change or U is the difference between current closing price and the previous closing price. A down period in the financial market is characterised as total difference between previous closing price and the current closing price. Actually, Exponential Moving Average is calculated using U and D. A RSI value is calculated by the formula RSI=100-100/1+RS. If you know “What to learn about a MACD Indicator” then it’s important to know about RSI too.


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