RSI

Notes:

These indicators and concepts are specifically designed for TradingView.com

Overview

Relative Strength Index (RSI) is a popular technical analysis indicator that measures the strength of a security's price action. The RSI is a momentum oscillator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of the asset.

How to Trade

To trade using the RSI, you can follow the steps below:

1. Identify the trend: Determine whether the trend is bullish, bearish, or ranging. You can use other technical analysis tools such as moving averages, trend lines, or support and resistance levels to identify the trend.
2. Determine the overbought and oversold levels: The RSI oscillates between 0 and 100, and traders typically use the 70/30 levels as overbought and oversold levels. However, you can adjust these levels based on your trading style and the market you're trading.
3. Look for signals: Look for potential trading signals based on overbought and oversold levels, divergence, or RSI trendline breaks.

• Overbought and Oversold Signals: When the RSI is above the overbought level, it may be a signal to sell or take profit. Conversely, when the RSI is below the oversold level, it may be a signal to buy or enter a long position.
• Divergence: RSI divergence occurs when the price of the security is moving in the opposite direction of the RSI. For example, if the price is making higher highs, but the RSI is making lower highs, it may be a sign of weakness and a potential signal to sell.
• RSI Trendline Break: Traders can draw trendlines on the RSI indicator, similar to how they draw trendlines on price charts. A break of the RSI trendline can signal a change in trend and be used as a potential signal to enter or exit a trade.

How to Calculate

The RSI is calculated using the following formula:RSI = 100 - [100 / (1 + RS)]

where:RS = (Average Gain / Average Loss)

To calculate the RSI, you need to determine the average gain and average loss over a specific period. Typically, traders use a 14-period RSI calculation, which means the RSI is calculated using the last 14 bars of price action. However, the RSI can be calculated using any number of periods.

To calculate the average gain and average loss, you need to determine the difference between the closing price of the current bar and the previous bar. If the difference is positive, it is considered a gain. If the difference is negative, it is considered a loss. You then take the average of the gains and losses over the specific period, and use the RS formula to calculate the RSI