What is RSI indicator ?

RSI indicator

RSI stands for Relative Strength Index — it's a momentum oscillator used in technical analysis to measure the speed and change of price movements.

🔍 What is RSI?

RSI helps traders identify overbought or oversold conditions in a market.

  • It ranges from 0 to 100.

  • Default setting is 14 periods (usually days, but can be minutes, hours, etc.).

📈 How to Read RSI

  • Above 70: Market is considered overbought → potential for a price drop.

  • Below 30: Market is considered oversold → potential for a price rise.

  • Between 30 and 70: Neutral zone (no strong signals).

🧮 RSI Formula

RSI is calculated using:

ini
RSI = 100 - (100 / (1 + RS))

Where RS (Relative Strength) is:

ini
RS = Average Gain over 14 periods / Average Loss over 14 periods

📊 Example:

If over the last 14 days:

  • Average gain = $1

  • Average loss = $0.50

Then:

ini
RS = 1 / 0.5 = 2
RSI = 100 - (100 / (1 + 2)) = 66.67

✅ Pros

  • Easy to use and interpret.

  • Useful for spotting potential reversals.

⚠️ Cons

  • Can give false signals in strong trends.

  • Best used with other indicators like MACD, support/resistance, or volume.

Comments

Post a Comment

Popular posts from this blog

The 4 Pillars of Successful Trading?

Image
Four Pillars Of Successful Trading.  The 4 Pillars of Successful Trading form the foundation of long-term consistency and profitability in any market—whether it’s stocks, forex, crypto, or commodities. Here they are: 🧠 1. Mindset (Psychology) "A trader’s worst enemy is often themselves." Discipline: Follow your plan—don’t chase trades or revenge trade. Emotional control: Stay calm through wins and losses. Patience: Wait for high-quality setups. Confidence: Comes from practice, backtesting, and journaling. 💡 Tip: Journaling your trades and emotions helps spot self-sabotaging patterns. 📊 2. Risk Management "It's not about how much you make—it’s about how much you keep." Position sizing: Risk a fixed % of your capital per trade (commonly 1-2%). Stop-loss orders: Define how much you’re willing to lose before entering. Risk-to-reward ratio (R:R): Aim for at least 1:2 (risk $100 to make $200). Capital preservation: ...
Read more

What is price action?

Image
Price action in trading refers to the movement of a security's price over time, and it's the foundation for many trading strategies—especially among technical traders. Instead of relying heavily on indicators or economic data, price action traders study raw price movements, typically through charts, to make trading decisions. Example: 🔍 Key Concepts of Price Action : Charts and Timeframes Traders analyze candlestick charts or bar charts on different timeframes (e.g., 1-minute, 1-hour, daily) to understand price behavior. Candlestick Patterns Patterns like doji, hammer, engulfing, and pin bars are used to predict reversals or continuations. Support and Resistance Horizontal levels where price has historically reversed or paused. Price action often reacts to these levels. Trends and Trendlines Identifying upward (bullish), downward (bearish), or sideways trends helps determine market direction. Breakouts and Fakeouts Watching how price behaves around key...
Read more

What is Binary Trading?

Binary trading.   Binary trading refers to a type of financial trading where the payoff is either a fixed amount or nothing at all. It's often described as an "all-or-nothing" option. Here's a breakdown: eg: Quotex.com 1. How It Works You choose whether the price of an asset (like a stock, commodity, or currency) will go up or down by a certain time. If your prediction is correct at the expiry time, you get a fixed return (e.g., 70–90% of your investment). If you're wrong, you lose the entire investment . 2. Key Features Simple Yes/No choice : Will the asset be above or below a certain price at a specific time? Short-term focus : Trades can last from 30 seconds to a few days. Fixed risk and reward : You know exactly how much you could win or lose before entering the trade. 3. Example You bet $100 that the price of gold will be above $2,000 in 1 hour. If it is, you get back $180 ($100 original + $80 profit). If it isn’t, you los...
Read more