<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "contrary to invest, trade requires a very active approach to the financial markets. Rather than buying and holding assets for build wealth over many years, a trader buys and sells frequently stocks, basic productsand other instruments to achieve higher returns. Traders use a variety of analytical tools (such as averages, oscillators, and indicators) to help them understand the performance of an asset or market. One of these tools is Relative Strength Index, or RSI. & Nbsp;"data-reactid =" 31 "> Unlike investments, trading requires a very active approach to the financial markets: Rather than buying and holding assets to create wealth for many years, a trader buys and sells often In order to guide their transactions, traders use various analytical tools (such as averages, oscillators and indicators) to help them understand the performance of an asset or a market. , as the relative strength index or RSI.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "RSI (Relative Strength Index), defined"data-reactid =" 33 ">RSI (Relative Strength Index), defined

So what is RSI? The relative strength index is a technical moment indicator. It measures the speed and magnitude of recent price changes of an asset. This helps traders identify potentially overbought assets – meaning they trade above their real value – or over-sold, which means they trade below their real value. RSI was developed by analyst James Welles Wilder Jr. He introduced in his 1978 book "New Concepts in Technical Trading Systems". Welles Wilder Jr. called the Relative Strength Index as he compares the strength of an asset to his days to the strength of the same asset during his difficult days. Welles Wilder Jr. suggested collecting data on the last 14 trading periods (days). To date, it is one of the most popular tools among traders.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "RSI scale"data-reactid =" 35 ">RSI scale

The RSI oscillates on a scale from zero to 100. It is usually represented graphically. The formula for calculating the RSI is as follows:

RSI = 100 – [100 / ( 1 + (Average Gain During Up Periods / Average Loss During Down Periods ) )]

To calculate even more precisely, you can use the previous averages to determine the current average gain or loss:

<p class = "web-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Average Gain = [(Average Gain So Far) x 13 + Current Gain] / 14
Average loss = [(Average Loss So Far) x 13 + Current Loss] / 14
"data-reactid =" 59 "> Average gain = [(Average Gain So Far) x 13 + Current Gain] / 14
Average loss = [(Average Loss So Far) x 13 + Current Loss] / 14

<p class = "canvas-atom text-canvas Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "RSI values ​​greater than 70 indicate that one active is becoming overbought and the market is bullish, while an RSI index of less than 30 indicates that an asset is being oversold and that the market bear. An RSI of 50 represents neutral conditions. "Data-reactid =" 60 "> RSI values ​​above 70 indicate that an asset is becoming too large and the market is bullish, while an RSI index of less than 30 indicates that an asset is becoming oversold and that the market an RSI of 50 represents neutral conditions.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "How to use RSI to your advantage"data-reactid =" 61 ">How to use RSI to your advantage

As noted above, RSI charts can help you predict the return on an asset or a market. In general, if you find an overbought or overvalued condition, you can expect a corrective price drop. Overpriced or dumped conditions indicate that an increase in price could be imminent. In other words, you should buy a stock when it reaches an ROI of 30 and sell it or sell it short when it reaches a RSI of 70.

<p class = "canvas-atom-text-canvas Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Some traders use more extreme RSI values ​​of 20 for purchase and 80 to sell to play "safe" with more volatile assets If you want to confirm the trend reversal, wait a little longer Buy only when the RSI goes below 30 and then starts to increase again. short When RSI exceeds 70, it falls below. "data-reactid =" 63 "> Some operators use more extreme RSI values, namely 20 for buying and 80 for selling, in order to play" safely "with more volatile assets. a little, buy only when the RSI goes below 30 and then start climbing again Sell or short sell when the RSI goes from 70 and then goes down below.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Of course, this can not be so simple Markets do not are not predictable and each asset evolves differently, with some remaining oversold or over-bought.Although RSI is a powerful tool, it is much more reliable in a booming market as it can send misleading signals regardless of market conditions. You should always combine the RSI readings with other indicators to validate the inversion forecasts. a financial advisor can help you take into account a wide range of market data in your investment decisions. Of course, it can not be that simple, the markets are not as predictable as ever, and each asset is evolving differently.Some remain Although RSI is a powerful tool, it is much more Reliable in a constantly changing market, as it can send misleading signals in a trend market, whatever the market conditions, you should always combine RSI readings with other indicators to validate the inversion forecasts although it's possible to do it yourself, a financial advisor can help you take into account a wide range of market data when making investment decisions.

RSI also helps traders identify discrepancies, that is, when the RSI reading does not match the movement of an asset. A bullish (or positive) divergence occurs when an asset reaches a new low price, but not the value of the RSI. Most traders view this as a buy signal because the sales momentum is slowing down and the price is likely to increase. The downside (or negative) divergence, in contrast, occurs when an asset reaches a new price high, but not the RSI value. This is usually interpreted as a sell signal because buying dynamics is slowing down and the price is likely to fall. Divergences should be used to confirm other signals and indicate when a trend may end.

The story continues

Last but not least, RSI helps traders determine and confirm general trends. By trading in the direction of the trend, you can earn more money. RSI can show patterns that the underlying price chart can not, such as double ups and downs, as well as support and resistance, predict future price changes.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The final result"data-reactid =" 71 ">The final result

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The Relative Strength Index is a powerful multi-purpose trading tool. It has remained relevant for over 30 years despite the changing market and the development of more sophisticated trading tools and technologies. You can use it to predict market behavior and asset values, but the RSI should only be an indicator of a global trading strategy. It is also important not to confuse RSI with relative strength, which compares the performance of different assets. & Nbsp;& nbsp;"data-reactid =" 92 "> The Relative Strength Index is a powerful multi-use trading tool that has been in use for more than 30 years, despite the changing market. and the development of more sophisticated trading tools and technologies.You can use it to predict market behavior and asset values, but the RSI should only be an indicator of how much money is needed. a global trading strategy, it is also important not to confuse the RSI with the relative strength that compares the performance of different assets.

Investment Tips

  • Intimidated by the thought of playing the stock market? You are not alone. Many people who want to grow their wealth will put their money in the hands of a financial advisor, who can help you develop a financial plan and choose investments that fit your goals and risk tolerance. Find the right advisor for you with our filtering tool, which will ask you a few questions and connect you with up to three advisors in your area.
  • Financial advisers require minimum investments. If you start, you may not be able to reach this minimum. Robo-advisor, an automated service that selects investments based on your goals and keeps your portfolio well-balanced, is a good alternative for new investors.
  • Photo credit: © iStock / grinvalds, © iStock / SasinParaksa, © iStock / Kerkez

    <p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The message What is the RSI? appeared first on SmartAsset Blog. "data-reactid =" 98 "> The message What is RSI? appeared first on the SmartAsset blog.

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