Relative Strenght Index ("RSI")

This indicator was developed by Welles Wilder Jr. Relative Strength is often used to identify price tops and bottoms by keying on specific levels (usually "30" and "70") on the RSI chart which is scaled from from 0-100. The study is also useful to detect the following:
  1. Movement which might not be as readily apparent on the bar chart
  2. Failure swings above 70 or below 30 which can warn of coming reversals
  3. Support and resistance levels
  4. Divergence between the RSI and price which is often a useful reversal indicator

The Relative Strength Index requires a certain amount of lead-up time in order to operate successfully

When Wilder introduced the RSI, he recommended using a 14-day RSI. Since then, the 9-day and 25-day RSI’s have also gained popularity. The fewer days used to calculate the RSI, the more volatile the indicator. The RSI is a price-following oscillator that ranges between 0 and 100.

The basic formula is:

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Where U=average of upward price closes (EMA of gains)

D=average of downward price closes (EMA of losses)