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Type of Indicators in Technical Analysis – The Relative Strength Index (RSI)

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The Relative Strength Index (RSI) is a technical indicator classified as a momentum oscillator that measures the speed of price movements.

The RSI is typically used on a 14-day time frame and measured on a scale of 0 to 100. Within that scale there will a high level marked at 70 and a low level marked at 30. The RSI is one of the most simple and straightforward technical indicator to read.

When the RSI rises above 70, it is considered overbought and the trend will likely to be bearish. When the RSI dips below 30 it is considered oversold and the trend of the market will likely to be bullish.

The illustration above shows the RSI below the low level marked at 30. This is an a signal that the market will likely to be bullish and traders could enter a long position. When the RSI rises above the high level of 70, it tells that traders should go into a short position as the market will likely to be bearish.

Some traders use different time periods for the RSI. For example, shorter term traders will use the 9-day period RSI instead of the 14-day period and longer term traders may use the 12-day or 28-day RSI.

Other Indicators in Technical Analysis:

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