Chapter 2 Relative Strength Index
The Relative Strength Index (RSI), developed by J. Welles Wilder, is a momentum oscillator that measures the speed and change of price movements.
The RSI oscillates between zero and 100. Relative Strength Index readings over 50 indicate price movement that is generally rising, while readings below 50 indicate price movement that is generally declining.
Traditionally the RSI is considered overbought when above 70 and oversold when below 30. The RSI provides signals that tell investors to buy when the currency is oversold and to sell when it is overbought.
Varying the time period of the Relative Strength Index might increase or decrease the number of buy and sell signals. In the chart below of Gold, two RSI time periods are shown, 14-day (default) and 5-day. Notice how in this example, decreasing the time period made the RSI more volatile, increasing the number of buy and sell signals substantially.
Convergence – RSI that follows in the same direction of the trend signifies potential trend strength and increasing speed of the trend.
Divergence - RSI that moves in
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