Trade Stocks Trading

Learn Stocks Trading

RSI Stock Trading Strategies

Relative Strength Index Indicator Stock Trading Strategy

Relative Strength Index or RSI is one of the most popular stock trading indicator used in Stock trading. It is an oscillator stock trading indicator which oscillates between 0 -100. This a stock trading trend following stock trading indicator. It indicates the strength of the stock trading trend, values above 50 indicate a bullish stock trading trend while values below 50 indicate bearish Stock trend.

 

RSI Stock Trading Indicator Measures Momentum of a Stock Trend.

The center-line for the RSI is 50 stock trading indicator, crossover of the center-line indicate shifts from bullish to bearish stock trading trend and vice versa.

 

Above 50, the buyers have greater momentum than the sellers and stock price on the stock trading chart will keep going up as long as this RSI stock trading indicator stays above 50.

 

Below 50, the sellers have greater momentum than the buyers and stock price on the stock trading chart will keep going downwards as long as RSI stock trading indicator stays below 50.

RSI Stock Trading Indicator - How to Trade Stock with RSI Stock Trading Indicator

RSI Stock Trading Indicator - How to Trade Stock with RSI Stock Trading Indicator

 

In the stock trading example above, when the stock trading indicator is below 50, the stock price kept moving in a downward stock trading market trend. The stock price continues to move down as long as RSI indicator was below 50. When the RSI stock trading indicator moved above 50 it showed that the momentum had changed from sell to buy and that the downward stock trading trend had ended.

 

When the RSI stock trading indicator moved to above 50 the stock price started to move upwards and the stock trading trend changed from bearish to bullish. The stock trading chart stock price continued to move upwards and the RSI indicator remained above 50 afterwards.

 

From the stock trading example above, when the stock trading trend was bullish sometimes the RSI would turn downwards but it would not go below 50, this shows that these temporary moves are just retracements because during all these time the stock trading price stock trading trend was generally upwards. As long as RSI indicator does not move to below 50 the current stock trading trend remains intact. This is the reason the 50 center line mark is used to demarcate the signal between bullish and bearish stock trading signals.

 

The RSI stock trading indicator uses 14 day period as the default period, this is the period recommended by J Welles Wilders when he introduced it. Other common periods used by Stock traders are the 9 and 25 day moving average.

 

The RSI indicator period used depends on the stock trading chart time frame you are using to trade, if you are using day stock trading chart time frame the 14 period will represent 14 days, while if you use 1 hour stock trading chart time frame the 14 period will represent 14 hours. For our stock trading example we shall use 14 day moving average, but for your trading you can substitute the day period with the chart time frame you are stock trading with.

 

To Calculate RSI Stock Trading Indicator:
  • The number of days that a stock trading market is up is compared to the number of days that the stock trading market is down in a given time period.
  • The numerator in the basic formula is an average of all the stock trading sessions that finished with an upward stock price change.
  • The denominator is an average of all the down stock trading sessions closes for that period.
  • The average for the down days are calculated as absolute numbers.
  • The Initial RSI is then turned into an oscillator.


Sometimes very large up or down movement in stock price in a single stock trading session stock price period may skew the calculation of the RSI average and produce a false stock trading signal - whipsaw signal - in the form of a spike.

 

RSI Center-line: The center-line for this stock trading indicator is 50. A value above 50 implies that the stock trading market stock trading trend is in a bullish phase as average gains are greater than average losses. Values below 50 indicate a bearish phase in the stock trading market stock prices are generally closing lower than where they opened.

 

Overbought and Oversold Levels: Wilder set the RSI overbought and oversold levels at which the stock trading market moves are overextended at 70 and 30.

 

Top 100 Stock Broker Rankings


Up To $5K Bonus - Limited Time Bonus





Regulated Broker