BQLearning: What Is Relative Strength Index?
(Source: BloombergQuint)

BQLearning: What Is Relative Strength Index?

BQLearning is a special show that seeks to demystify financial markets, economic theories, legal processes and political structures.

In this series, we explain how technical analysis works; how to identify trading opportunities through it and decode various concepts associated with it.

The Relative Strength Index is a momentum oscillator that measures speed and change of price movements. Its movement oscillates between 0 and 100.

It indicates whether a stock is ‘Overbought’ or ‘Oversold’. The RSI will increase as the number and size of positive closes increase, and it will fall as the number and size of losses increase. A stock is ‘Overbought’ if the indicator oscillates above a reading of 70 and ‘Oversold’ if it’s below 30.

But this indicator cannot be analysed in isolation and traders need to establish the overall trend direction before acting on RSI signals.

How to analyse RSI indicators

  • Initiate a buy trade if prices are oversold in an uptrend.
  • Initiate a sell trade if prices are overbought in a downtrend.

Watch the full video here:

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