The RSI stands for the relative strength index and is used by traders to determine when a stock is overbought or oversold. The RSI compares the magnitude of recent swing move ups to recent swing move downs in an attempt to determine if a stock is overbought or oversold. It is calculated using the following formula:
RSI = 100 – 100/(1 + RS*)
*Where RS = Average of x days’ up closes / Average of x days’ down closes.
The RSI indicator is a type of oscillator indicator which means it works best in a trading market and not a trending market. In a trending market, the RSI can become useless as it gyrates for long periods of time at an either overbought or oversold level.<< Back to Glossary Index