What Is Relative Strength Index? Definition Of Relative Strength Index, Relative Strength Index Meaning

The relative strength index measures a security’s price performance and indicates whether a reversal in direction is imminent.

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The relative strength index is an indicator of buying or selling opportunities for a security, such as a stock or commodity.

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What Is the Relative Strength Index (RSI)?

The relative strength index (RSI) indicates whether a security, such as a stock, is overbought or oversold. It’s a technical indicator that is a part of a group of measures known as momentum oscillators, which determine whether a stock’s movement signals an opportunity khổng lồ buy or sell. Another popular oscillator used by investors và analysts is the moving average.

Technical indicators, in the case of stock prices with RSI, have very little to vì with a company’s fundamentals (earnings, revenue, etc.) & instead focus solely on stock price movement.

RSI can be used effectively on any security or commodity that has a price and is traded daily. It’s commonly used when markets are either in a downturn or upturn và are moving very quickly in either direction. Investors use the indicator on a stock that has been making sharp up or down moves in a short period and want to lớn know from that technical analysis whether khổng lồ buy or sell. Popular instruments and commodities to track via relative strength index include bitcoin, gold, and silver.

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Relative Strength Index Formula

RSI = 100 – (100 / <1 + 14-Day Average Gain / 14-Day Average Loss > )

How lớn Calculate a Stock’s Relative Strength Index

The indicator uses 14 days as a benchmark, và that represents roughly three weeks of data, on the premise that trading is conducted only during weekdays (Monday khổng lồ Friday). Some investors và analysts, though, use other periods, such as đôi mươi or 30 days.

Over that 14-day period, determine the stock’s average gain in price on days when it rises from the previous day, and the average loss for days when it is down from the previous day. The relative strength is calculated by dividing the average gain by the average loss.

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From there, đầu vào the data into the RSI formula above. The indicator must be between 0 và 100. If the RSI is lower than 30, it suggests the stock has fallen more than it should have (i.e., is oversold) và signals a buying opportunity. If it is higher than 70, this suggests that the stock has risen more than it should have (i.e., is overbought) & signals a selling opportunity.

In other words, if the stock is trending at 30 or lower, the indicator suggests a reversal for the price khổng lồ go higher. The same applies for the stock trending at 70 or higher; this is an indication of reversal for the price khổng lồ go lower. An RSI at around 50 suggests no immediate price kích hoạt to move either up or down.

How to lớn Calculate RSI on a Spreadsheet (Example: Netflix)

Step 1: Gather data, at least 15 days’ worth of prices. In this example, the closing stock price of Netflix is collected over a 1-year period.

Step 2: Calculate daily percentage change. (Note: The formulas for each cell are shown in the cell và on the top left field area of the screenshot of the spreadsheet.)

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Step 2

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Step 3

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Step 3

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Step 4

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Step 4

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Step 5

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Step 6

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Step 7

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