Relative Strength Index (RSI)

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The Relative Strength Index ( RSI) is an oscillation indicator takes values fluctuating between  0 to 100 used to determine Extreme market conditions.

If the Relative Strength Index value is above 70 market is overbought.

If the Relative Strength Index value is below 30 market is oversold.

Otherwise market is neutral.

rsi

The chart above shows how the RSI became overbought after the market price reached its top and then it started dropping. The opposite happened later when the RSI became oversold and the market started rising.

RSI can also be used to determine what the Trend is in the following way.

If the Relative Strength Index value is above 50 the trend is up.

If the Relative Strength Index value is below 50 the trend is down.

rsi

The chart above shows how the RSI crossing bellow the 50 mark can be used as an additional confirmation to sell in a market dropping.

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