Technicals Stability Returns

##### Related Technical Analysis Tutorial
 Overbought Over Sold Basics Relative Strength Indicator (RSI) Stochastic Williams %R Money Flow Index (MFI) Rate Of Change(ROC)

## Learn RSI, its Interpretation, Concepts, Divergence, Tips to Trade

##### What is RSI?

RSI stands for Relative Strength Indicator. It is a momentous oscillator used to identify trends reversal.

###### Who invented RSI ?
RSI was invented by Welles Wilder Jr.

###### What is the concept of RSI?
RSI calculates strength the of stock trend and helps to predict their reversals. RSI value oscillates between 0 to 100. As per Wilder when RSI value is above 70 it is considered as overbought and when RSI is below 30 it is considered as oversold. Some traders use 75/25 or even 80/20 to define overbought and oversold.
A value between 35 to 65 is a no entry or exit point for traders who rely on RSI as primary indicator. However their movement can help supplement other indicators signals. Another use of RSI is to determine divergence between price and RSI. Divergence indicates trend reversals.

##### Formula to Calculate Relative Strength Index (RSI)
• RSI = 100 - 100 / ( 1 - RS )
• Relative Strength (RS) = Average Gain / Average Loss
###### Other Variations of RSI
• RSI Smooth
• Stochastic RSI
• Stochastic RSI Smooth

##### Uses of RSI
1. Identify overbought stocks.
2. Identify oversold stocks.
3. Identify trend reversals.
4. Identify the direction of the trend .
5. Excellent tools for swing traders .
##### Relative Strength Index (RSI) Swing Rejection Explanation & Strategies
###### 1) RSI Bullish Swing Rejection

RSI Bullish Swing Rejection might occur when traders see that the RSI approaches an oversold level, signalling possible buying opportunities. However, instead of going downward, the price is rejected or reverses, indicating a bullish trend.

RSI Bullish Swing Rejection trading strategy scenario:
• The RSI shows an oversold state (generally below 30), implying that the asset has suffered a substantial downward price movement and is ready for a potential reversal.
• A bullish swing rejection happens when the price attempts to go higher but encounters resistance. This rejection might be seen at a critical level, such as a prior support-to-resistance zone.
• The combination of the RSI oversold position and the rejection of lower prices signals a potential uptrend.

###### 2) RSI Bearish Swing Rejection

"RSI Bearish Swing Rejection" is a technical analysis situation in which the Relative Strength Index (RSI) indicates a bearish condition and the price encounters resistance while attempting to go lower.

RSI Bearish Swing Rejection trading strategy scenario:
• The RSI shows an overbought position (generally above 70), implying that the stock has had a large upward price movement and is ready for a potential reversal.
• A bearish swing rejection happens when the price attempts to go lower but is met with resistance. This rejection might be seen at a critical level, such as a former resistance-turned-support zone.
• The combination of an overbought condition based on RSI and a rejection of higher prices signals the potential downtrend.

Divergence:
A divergence is formed when

a. In a downtrend RSI is making higher highs and higher lows while price is making lower highs and lower lows.
b. In an upward trend RSI is making lower high and lower lows while price is making higher high and higher lows.

##### Tips to trade with RSI.
1. A general rule of buying when RSI moves from below 30 to above with a combination of another indicator like rise in volume or Moving average crossover or any other indicator of your choice.
2. A general rule of selling when RSI moves from above 70 to below with combination of another indicator like rise in volume or Moving average crossover any other indicator of your choice.
3. When RSI trend is falling and price trend is rising and RSI is in overbought state then a reliable sell signal is generated.
4. When RSI trend is rising and price trend is falling and RSI is in oversold state then a reliable buy signal is generated.
5. For those who use end of the day data may profit from RSI in 1-7 days or more days.
6. Less risky traders should wait for RSI to move above 30 from below 30 to take a position. Aggressive traders sometimes even take 35/65 as oversold and overbought range.
7. RSI values can be altered for different types of stocks. For extremely stable stocks or small price ranging stocks a value of 35 may be a good entry point and for highly volatile stock a value of 25 may even be considered as high risk.
8. Trend reversal at 70 /30 is considered to be 75% accurate.
9. Trend reversal for divergence is considered to be about 80% accurate.
10. Divergence loses its significance in the sideways market.

##### Warning
a. Buying stock just based on its value below 30 may lead to losses. In stock down trend RSI may stay below 30 for a long time with continuous fall in price.
b. Similar to aforementioned point, selling just based on RSI above 70 may reduce your profit.
c. In extremely strong trend , RSI can yield wrong results.
d. In some cases RSI and price divergence can last for a longer time before trend reversal. Traders needs to be patient with it.
e. Not all stock movements will generate RSI buy/sell signals.

Other tutorials related to RSI for better understanding can be found at:

Our website provides free Stock screening based on Overbought/Oversold conditions. It can be found at:
1.Stock screening based on RSI
2.Stock screening based on Stochastic

##### RSI Video Tutorial

Wait for US Stock Analytics & Screeners is Over
StockAio.com (Stock All In One) is now Live
We hope you will provide us with the same Love & Support as you did for TSR.
Wait for US Stock Analytics is Over
StockAio.com (Stock All In One) is now Live
We hope you will provide us with the same Love & Support as you did for TSR.