If the instrument is making a new high, but the RSI is failing to exceed its previous high, this " divergence" is an indication of an coming reversal. These situations can be represented in the following two scans:īullish (Oversold) RSI > 30 AND RSI.1 = 70ĭivergence Another popular method of analyzing the RSI is to look for a divergence.
If the RSI rises above 30, it is considered bullish, while if the RSI falls below 70, it is considered bearish. Overbought / Oversold The RSI indicator ranges in value from 0 to 100, with numbers above 70 indicating overbought conditions and under 30 indicating oversold. When the RSI then turns down and falls below its most recent trough, it is said to have completed a "failure swing" and therefore confirmed the coming reversal. If the instrument is making a new high, but the RSI is failing to exceed its previous high, this "divergence" is an indication of an coming reversal. The name "Relative Strength Index" may be somewhat misleading, as it does not compare the relative strength of two securities such as the Relative Strength (RS) indicator does, but rather the internal strength of a single security.Ī popular method of analyzing the RSI is to look for a divergence. AG is the average price gain over some period and AL is the average price drop over some the same period. In mathematical terms, RSI = 100 - 100/(1+RS) where RS is calculated as the ratio of two exponentially smoothed moving averages, AG/AL.
The RSI oscillates in a range between 0 and 100 representing a comparison of the magnitude of a stock's recent gains to the magnitude of its recent losses. Welles Wilder and introduced in his 1978 book New Concepts in Technical Trading Systems. The Relative Strength Index (RSI) is a popular price momentum oscillator developed by J.
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