What is the RSI indicator?
The RSI (Relative Strength Index) is a well established indicator classified as a "momentum based oscillator" which traders use to:
- Measure the speed (velocity) of price movements.
- Measure the change (magnitude) of directional price movements.
The indicator determines a value based on the cumulative strength and weakness of price, set in the input Price, over the period set in the input Length, which by default is a period of 14.
RSI gathers the points won on candlesticks with higher closes and the points lost on candlesticks with lower closes. The "index" of these two sums is plotted on the chart.
RSI operates between a scale of 0 and 100. The closer RSI is to 0, the weaker the momentum is for price movements. The opposite is also true. An RSI closer to 100 indicates a period of stronger momentum.
The indicator provides a visual mean to monitor both the current, as well as historical, strength and weakness of a market. RSI has proven to be a reliable indicator of price movements.
The RSI is most well-known for it's ability to recognize market turning points (reversals).
On the standard setting of 14 periods, the market will:
- Reverse to the downside when the RSI is above the 70 level.
- Reverse to the upside when the RSI is below the 30 level.
Example: RSI shown on a ProRealTime Chart