Trade with Relative Strength Index (RSI)

What is an Oscillator
An oscillator is a leading technical indicator which fluctuates above and below a center line and normally has upper and lower bands which indicate overbought and oversold conditions in the market (an exception to this would be the MACD which is an Oscillator as well).
What is RSI
The RSI is best described as an indicator which represents the momentum in a particular Stock or Index  when it is reaching extreme levels to the upside (referred to as overbought) or downside (referred to as oversold) and is therefore due for a reversal. RSI Bands are  placed at 70 which is considered an extreme level to the upside, and 30 which is considered an extreme level to the downside.
RSI Calculation
100
RSI = 100 - --------
1 + RS
RS = Average Gain / Average Loss

This RSI calculation  is based on 14 periods, which is the default suggested by Wilder in his  book. Losses are expressed as positive values, not negative values.
The very first calculations for average gain and average loss are simple 14 period averages.
First Average Gain = Total of Gains during the past 14 periods / 14
First Average Loss = Total of Losses during the past 14 periods / 1
The second, and subsequent, calculations are based on the prior averages and the current gain loss:
Average Gain = [(previous Average Gain) x 13 + current Gain] / 14.
Average Loss = [(previous Average Loss) x 13 + current Loss] / 14.
Example of RSI

• To Identify and potentially overbought Index/Stock

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