Relative Strength Index ( RSI) is one of most useful and leading oscillator, it is developed by J.Welles Wilder, it measures strength of a stock by comparing recent stock gain and loss .It uses the number from 0 to 100,usually it is considered to be oversold when the RSI is under 30(or 25), the stock is likely to be undervalued and stock price will pull back. When RSI is above 70(or 75) range, the stock is likely to be overvalued and stock price will go down. When the RSI is between oversold and overbought area, see the trend for internal strength is improving or weaking.
RSI Formula
RSI = 100 -100/(1+RS)
RS= Average of UP closing price changes for the number of days selected/
Average of net Down closing price changes for the number of days selected
For example:
To calculate a 14 days RSI,
1)find all the days where the market closing price higher than previous day and add all the increased amount,then divide the sum by 14 to get the average up closing price changes.
2)find all the days where the market closing price lower than previous day and add all the decreased amount, the divide the sum by 14 to get the averge down closing price changes.
3)divide average of up closing price changes by average down closign price changes to get RS.
4)calculate RSI provided by the above formula.
RSI = 100 -100/(1+RS)
RS= Average of UP closing price changes for the number of days selected/
Average of net Down closing price changes for the number of days selected
For example:
To calculate a 14 days RSI,
1)find all the days where the market closing price higher than previous day and add all the increased amount,then divide the sum by 14 to get the average up closing price changes.
2)find all the days where the market closing price lower than previous day and add all the decreased amount, the divide the sum by 14 to get the averge down closing price changes.
3)divide average of up closing price changes by average down closign price changes to get RS.
4)calculate RSI provided by the above formula.
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