RSI (Relative Strength Index)

RSI (Relative Strength Index) is a momentum oscillator used in technical analysis to measure the speed and change of price movements of a financial instrument. It ranges from 0 to 100 and helps identify overbought or oversold conditions in a market.

Key Aspects of RSI:

1. Calculation:
   • RSI is based on the average gains and losses of an asset over a specified time frame, usually 14 periods.
2. Interpretation:
   • Overbought: RSI above 70 suggests the asset may be overvalued and due for a correction.
   • Oversold: RSI below 30 indicates the asset may be undervalued and due for a rebound.
   • Divergence: When the asset's price and RSI move in opposite directions, it may signal a potential reversal.
3. Signal Generation:
   • Buy Signal:RSI crossing above 30 from below.
   • Sell Signal: RSI crossing below 70 from above.

Usage:

• Trend Identification: RSI helps identify the strength and direction of trends.
• Confirmation Tool: Used with other indicators to confirm trading signals.
• Range Trading: Identifies entry and exit points in sideways markets based on overbought and oversold levels.

RSI is a versatile indicator that provides insights into market momentum and potential reversal points, aiding traders in making informed decisions.