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FINANCIAL CHRONICLE™ » CHRONICLE™ ANALYTICS » Chart Pattern - Relative Strength Index (RSI)

Chart Pattern - Relative Strength Index (RSI)

+13
day_lk
pathfinder
laki
Roboticfx
harshana4
Ben Graham
worthiness
JennyFunny
Rajaraam
cmnet123
RichDad
dilshanusjp
Quibit
17 posters

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Quibit


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics

[You must be registered and logged in to see this image.]

Relative Strength Index is a technical indicator that compares the magnitude of recent losses to recent gains in order to identify overbought and oversold conditions of a stock. If you are keen to know the formula of this indicator, it is as follows:

[You must be registered and logged in to see this image.]

The value of this indicator could range between 0 and 100 and let's look at this graphically to get a better understanding.

[You must be registered and logged in to see this image.]

BUY/SELL Signals

If the RSI falls below 30 the stock is oversold and gives a bullish (BUY) signal and if the RSI moves above 70 the share is considered to be overbought and as such gives a bearish (SELL) signal. When you are using the RSI to predict stock price movements you should remember the fact that, large movements up or down in the stock price would result in false buy or sell signals. Therefore, it is very important that you use this tool along with other stock picking tools and not in isolation.

Further, to interpret buy or sell signals you can also look at the RSI along with the price movement of the stock. In the above graph the upper section depicts the price movements of the share and the lower part depicts the RSI ranging from 0 to 100. When the price of a security deviate from the corresponding Relative Strength Index on that security it gives an advance warning of a possible trend reversal. That is to say the Price and the RSI could move in the same direction or in the opposite direction.

You will note from the above graph that the price and the RSI both could either move up or down. If both the price and RSI move up it is a BUY signal and it is a SELL signal if the price and RSI are both falling.

On the other hand, the price and RSI could move in opposite directions. In such an instance, if the price is rising and the RSI is falling it is a SELL signal and when the price is falling and the RSI is rising it is a BUY signal.

Sri Lanka Equity Analytics
www.srilankaequity.com

Loronsu and RajapaksaDON like this post

dilshanusjp


Senior Equity Analytic
Senior Equity Analytic

thnks nice to see this.are there any softwares to calculate RSI fr investors personaly in CSE market

RichDad

RichDad
Manager - Equity Analytics
Manager - Equity Analytics

Thanks Quibit. This is helpful.

Please enlighten us on 'momentum' as well.

Loronsu likes this post

RichDad

RichDad
Manager - Equity Analytics
Manager - Equity Analytics

Thanks Quibit. This is helpful.

Please enlighten us on 'momentum' as well.

cmnet123

cmnet123
Senior Equity Analytic
Senior Equity Analytic

dilshanusjp wrote:thnks nice to see this.are there any softwares to calculate RSI fr investors personaly in CSE market

DirectFN Tws....Meta Stock.

Rajaraam


Vice President - Equity Analytics
Vice President - Equity Analytics

So far I have not used charts patterns to take investment decisions bcs I have avery little knowledge of that. But sometimes I follow others views who use these charts. Quibit , it is realy interesting to read your post.I think if we could use these charts we could deal with any idea.

JennyFunny


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

great thanks..

dilshanusjp


Senior Equity Analytic
Senior Equity Analytic

thanks alot

Quibit


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics

RichDad wrote:Thanks Quibit. This is helpful.

Please enlighten us on 'momentum' as well.

http://forum.srilankaequity.com/t2947-chart-pattern-stochastic-oscillator

worthiness


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics

Quibit,

what are applications available to draw such charts?
what is the source for down loading.

Ben Graham

Ben Graham
Senior Equity Analytic
Senior Equity Analytic

Developed by J. Welles Wilder, the Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between 0 and 100. Traditionally, and according to Wilder, RSI is considered overbought when above 70 and oversold when below 30. Signals can also be generated by looking for divergences, failure swings and center line crossovers. RSI can also be used to identify the general trend.


Divergence

Wilder further believed that divergence between RSI and price action is a very strong indication that a market turning point is imminent. Bearish divergence occurs when price makes a new high but the RSI makes a lower high, thus failing to confirm. Bullish divergence occurs when price makes a new low but RSI makes a higher low.


Failure Swings

Wilder also considered failure swings as strong indications of an impending reversal. Failure swings are independent of price action. In other words, failure swings focus solely on RSI for signals and ignore the concept of divergences. A bullish failure swing forms when RSI moves below 30 (oversold), bounces above 30, pulls back, holds above 30 and then breaks its prior high. It is basically a move to oversold levels and then a higher low above oversold levels.

A bearish failure swing forms when RSI moves above 70, pulls back, bounces, fails to exceed 70 and then breaks its prior low. It is basically a move to overbought levels and then a lower high below overbought levels

Positive-Negative Reversals


A positive reversal forms when RSI forges a lower low and the security forms a higher low. This lower low is not at oversold levels, but usually somewhere between 30 and 50. In essence, price action overruled momentum.

A negative reversal is the opposite of a positive reversal. RSI forms a higher high, but the security forms a lower high. Again, the higher high is usually just below overbought levels in the 50-70 area.


Source-
http://stockcharts.com/

harshana4


Equity Analytic
Equity Analytic

In RS what do you mean by 'up' closes and 'down' closes...is that mean days high and low or any other ?

Roboticfx

Roboticfx
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics

Thanks a lot. Good Work!

laki


Senior Equity Analytic
Senior Equity Analytic

ela ela good work

pathfinder

pathfinder
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

worthiness wrote:Quibit,

what are applications available to draw such charts?
what is the source for down loading.

can do it with Direct FN

day_lk


Equity Analytic
Equity Analytic

GREATE POST.TKANKAS.

sachithgh

sachithgh
Equity Analytic
Equity Analytic

Interasting
Thank for sharing with us.............

Kumar

Kumar
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics

Thanks mate for sharing the post, the link is very interesting.

jehovah

jehovah
Equity Analytic
Equity Analytic

thanks.... Laughing

snuwan


Stock Trader

DID ANYONE KNOW ABOUT THIS INDICATOR  HOW TO USE PROFESSIONALLY .

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Last edited by snuwan on Sat Feb 01, 2020 11:56 pm; edited 1 time in total (Reason for editing : NON)

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