Technical Indicator Relative Strength Index

Technical Indicator Relative Strength Index

 

Relative strength index or RSI gives you trading signals that let you know if the price of the asset is overvalued or undervalued. There is a mathematical formula that goes behind plotting these technical indicators. However, the maths could be a little intimidating. All that you need to know when using these technical indicators is to read them visually. These give trading signals and show you when the asset is expensive or overbought and when it is cheap or oversold. This information is used by many future traders to take a position in the futures market.

Relative strength index

Relative strength index or RSI can be plotted on the chart and you will be able to see it below the price chart. The value of the RSI ranges from 0 to 100. When the RSI value is high then this means that the asset is expensive and you should look to sell it. The RSI is in the overbought region when its value is above 70.

When the relative strength index is low and its value is less than 30 then this means that the asset is oversold and one should look for opportunities to be a buyer in the market.

Slow moving and the fast-moving RSI

The RSI has plotted two lines. One is the slow-moving RSI that is plotted over a 14 days period. There is a faster moving RSI that is plotted over a 6 day period. You can use either of these to plan your trades. Since the fast-moving RSI takes a lesser amount of data it shows you a change in trend fast but it may not be as accurate as a slow moving average that averages out the data for 14 days.

Buy and sell using RSI

The upper line of the RSI is an indicator of being overbought and its value is 70. This is where you need to look to sell the asset. When the price is at the overbought area this means that the price has risen very fast and too high and it is due for a correction.

The lower line is an indication of an oversold position. This is where you should be a buyer in the market. When the RSI value goes below 30 then it means that the prices have fallen very fast and too far and one should look to buy the asset now on the automated trading robot.