RSI

                           RSI


Relative Strength Index (Relative Strength Index - RSI)
The relative strength index (RSI) was developed by J. Welles Wilder, Jr. in 1978.
As a momentum indicator, the RSI measures the speed of price movement. In this model, the
values ​​are generally elastic in that they can be moved by limited
only distance from the average react before or retract. The rapid rise of
prices leads to overbought conditions and rapid decline in Oversold
situations. The slope and RSI values ​​are directly proportional to the speed and
size of the price movement and is highly useful for identifying
Overbought and Oversold conditions.
The RSI indicator is the most popular probably oscillator and serves primarily to
provide warning signals for a) possible exhaustion of the upward or downward trend
prices, b) indications upcoming violent reversal of the market and c) reliable signals
buying and selling within zones transactions.
The index name may be misleading because it seems to have the role
comparison of the performance of the share to the overall index. A more correct name would
internal rate of power actually examines how enhanced seems to
is the current share price compared to the momentum gained in the last
meeting. From there we can figure out if the stock is low or
high in relation to the levels previously touched and hence when considered
Oversold or overbought.
The formula for calculating the RSI is the following:
RSI = 100 - (100 / (1 + RS))
where RS is the relative capacity of the shares resulting from the following
process:
1. We take the sum of the closing prices of upward meetings
last X days (ie meeting where the closing price rose
compared to the previous day) and the divide by X
Two. We take the sum of the closing prices of the downward meetings
last X days and divide by X.
Three. Divide the number resulting from step (1) to the number of step (2)
and the product of this variable is the RS.


Concerning the number of days used in RSI, Wilder in the original
presentation of the proposed index 14. Several analysts use alternative 9
short days for more analysis. Today periods 9 and 25 days is
equally popular. Naturally the shorter the time the more zigzag
shown in the index.
The RSI is characteristic that it is an indicator that oscillates
between 100 and zero and has clear boundaries appreciation and depreciation. When the
index takes values ​​greater than 70 assumed to be overbought, and when it falls below
from 30 Oversold considered. When the pointer moves between 30 and 70
considered that is in the neutral zone and uninteresting, while the level
balance ratio is 50.
A prevalent method of analysis of the index is the observation gaps
between the index and the share price. If the stock goes up continuously, but
upward trend is not followed by higher prices of Relative Strength Index, the
things probably is not good. Indeed, if the index instead reached its highest price
fall lower than some other recent low point while the share rises to
higher levels ("splitting failure", failure swing), then things not only
well but are rather bad.
In the diagram below, point A, the index indicates that the stock is over-
purchased. In B, the stock makes a new record, while the index is lower
(Deviation). Following correction of the price. In point C the stock is over-Sold (the
index is below 30). The extreme reaction was corrected in time
follows.

Also a classic case of deviation shown in the diagram below
4.14. The highest point of the share for the period shown is Y. But
the index in G has fallen far short of its maximum value (near B).

The most basic methods of buying and selling with the RSI indicator are as follows:  Whenever the RSI breaks the line 70 downstream of a signal is selling stock, and when the index breaks the line 30 upwards given a buy signal. Yet simple decays overbought - Oversold RSI lines are not particularly reliable signals in practice, as the index drifted into multiple splits in times voltage which may not reflect purchasing opportunities or appropriate values ​​for liquidation but from the momentum speed and excess momentum of price.  Formations top and base. When the RSI forms a peak over 70have indications of peak prices and even face the possibility that the market turned down by cathodic reaction. When the RSI forms a cavity under 30 have indications of base prices and are preparing for possible reversal of the market upwards.  Deviations peak (top failure swings) and divergences base (bottom failure swings). Deviation peak detected when the index form high above the top 70 and then forming the second peak is also more than 70 but lower than the first, while the subsequent descent of below 70 splits the low between the two peaks. To top failure swing indicatesstrong weakness of the share. Divergence occurs when the base index forming low bottom below 30 and then the second bottom also below 30 but higher than the first, while the following increase of the index of more than 30 breaks the high between these two bottoms. Failure to bottom Swing the RSI indicates concentration effect of the share. Both formations peak discrepancies and divergences base formations areshort-term phenomena usually lasting a few weeks.  Geometric formations (chart formations). The RSI has the feature to display quite often vertex forming base or continuation just as the prices in the bar chart. Many times it may be the RSI shows formations that are not visible in the bar chart of the share and put us to increased preparedness for possible market reaction. The formations peak is more reliable as high inside the overvalued zone, while the base formation is more reliable as are lower in the underrated band.  Levels of support / resistance. We can define the resistance levels RSI inseparable from the peaks has formed over 70 and which correspond to the same levels of resistance values. The split level one resistance value, which is preceded by cleavage of the resistance of RSI is clearly more reliable brand market share.  Positive and negative deviations. When the RSI forms a negative deviation from the values ​​and even in overbought area then appears exhaustion and reversal of the upward trend in prices. When the RSI forms a positivedeviation from the values ​​and even in Oversold region then we have evidence of an attack of buyers. The negative and positive deviations differ from the top / Botton Failure Swings as they are longer events.  Trendlines. As is the price, we can draw lines upward and downward trend in the RSI and use the signals decay of trend lines to prepare to takepositions in the market. The positions activated by the signals we get from the values ​​themselves and breaking their own trend lines.  Apply moving averages in RSI. To effect the smeared intense and short-lived fluctuations in RSI, often added to the diagram of the indicator and a moving average of (3, 5 or 7 days). When the RSI breaks downwards the mobile medium in overbought area, then given sell signal and when breaks upward the mobile agent in yperolimeni area, then given a buy signal.