The Relative Strength Index is a technical analysis indicator that gauges the strength and velocity of price oscillations. It’s a type of momentum oscillator that looks at the magnitude and speed of market fluctuations. The RSI is represented as a line graph that oscillates between two extremes and has a range of 0 to 100.
In the late 1970s, J. Welles Wilder created the RSI indicator. His goal was to design a charting tool that would allow traders to analyze a stock’s performance. In his book New Concepts in Technical Trading Systems, Wilder first introduced the concept. The book introduced other popular charting methods, like as the Average Directional Index (ADX), Average True Range (ATR), and the Parabolic Stop and Reverse, in addition to the RSI indicator (also known as Parabolic SAR).
The RSI indicator considers an item’s price over 14 periods when used with conventional settings. When applied to a candlestick chart, the indicator measures price oscillations based on the preceding 14 candles (which means 14 hours on hourly charts, 14 days on daily charts, and so forth). Technically, the RSI plots data on a 0-100 scale by dividing the average gain by the average loss. When the RSI falls below 30%, an asset is deemed oversold and considered overbought when it rises beyond 70%.
RSI, which is commonly shown beneath the graph of an asset’s price, can reveal bullish and bearish divergence as well as price momentum in technical trading.
