Trading Online Based On The Relative Strength Index
Investors who want to learn stock market investing often turn to technical analysis for objective and unbiased guidance as to when they should enter or exit a particular position. Some events are simpler to determine than others, especially for people who are just starting to learn stock techniques. The Relative Strength Index (RSI) of a security would be medium-difficult.
What Is Relative Strength (RSI) An oscillator, RSI measures a security's relative strength compared to its own price history. What this does for the investor is provide insight into overbought and oversold conditions and can also help identify support and resistance levels better than the price chart itself can.
How Relative Strength Works Unlike some of the other oscillators covered in our technical analysis series, the RSI is plotted on a scale of 0 to 100. The key levels to remember are 0 to 30 for oversold, 30 to 70 for in range, and 70 to 100 for overbought. Depending on the investor's strategy, these numbers can have different trading implications.
Figuring out the RSI In terms of mathematics, maintaining an ongoing RSI chart is more involved than some other technical analysis calculations. To figure out a security's RSI, we use this formula: 100 - [100/(1 + A)] where A consists of the average "up" days divided by the average "down" days over a predetermined time frame. For example, if a stock closes up 7 days and down 7 days of the past 14 days, then the RSI would be 50.
Trading the RSI Unlike other indicators, the RSI does not simply provide black-and-white buy or sell recommendations. Instead the RSI can provided a number of key pieces of information. First the RSI is often better than the underlying security's price chart at demonstrating key support and resistance levels. Second, the RSI will show whether a security is overbought (level between 70 and 100) or oversold (between 0 and 30). These bearish and bullish signals can help investors determine whether to exit an existing position or open a new one, either on the long end or the short end. Relying on the RSI to confirm a prospective trade is really the entire point of using technical analysis in the first place.
Trading software can alleviate a lot of the time consuming and draining calculations needs to produce a solid buy or sell signal. Although technical analysis involves many aspects and signals, such software can change an individual investor's experience from overwhelmed to simple... or at least make it simpler.
About the Author
Chris Blanchet has over 16 years as a Financial Advisor. Read more about online trading and receive complimentary access to the Technical Analysis Series at Online Trader Today.
Previous Article - Next Article
Add Your Picture
Article Submitted By:
ChrisBlanchet
Subscribe To: ChrisBlanchet Rss Feed
This Article Has Been Read 41 Times
Publish/Share this article
Remember: The article body, title, author bio and links may not be changed or removed. By publishing this article, you agree to all the terms in our Terms of Service.
Rating: Not yet rated
More articles in this Category
How to select your stock broker
Can a forex diary complement the trading system?
Futures Trading: What To Do
A Basic Introduction to Trading
The Keltner Channel and Bollinger Bands
Traits Of Successful Forex Traders
Know About Option Pricing Formulas
ES Emini Day Trading: The Perfect Day Job
Introduction to Using ETF Trading Strategies to Increase Your ROI
CFDs Futures Trading
Why Setting Trading And Investing Goals Can Improve Performance
Have You Learnt The Unknown Facts About Trading For A Living
Trade Futures with CFDs
Why Trade Futures and Options
Some Helpful Tips on Day Trading For a Living
How Option Trading Profit In Any Market Conditions
The Biggest Threat to Your Own Investment Success Could be Yourself
Secrets Of Technical Analysis In The Stock Market Trading
Is A Forex Trading Course Really Necessary?
Novice to Pro : Journey on the Forex Learning Curve
Trade Commodities with Financial Spread Betting Broker
Financial Spread Betting and Forex
Advantages of CFD Trading
Getting Started with a Forex Trading System Course
Exit Strategies In Trading Systems
Swing trading is the best trading option!
Trading Online Based On The Relative Strength Index
Forex Day Trading With The Forex Trading Machine
How Many Markets Should You Trade?
