RELATIVE STRENGTH INDEX

   RELATIVE STRENGTH INDEX

        TECHNICAL ANALYSIS 

Technical analysis is a belief that is believed by many people to be true. It is not science which can be used to earn money in stock market. In other words the tool used by us for technical analysis may not show same result as it has shown in past. If we invest money as per technical indicators then we should keep in mind that it does not guarantee 100% profit or return of profit. Understanding technical analysis helps us to keep ourselves in better position to know how market is behaving.

Disclaimer 

If you take action based on my input or technical analysis as explained by me then you shall be responsible for your actions.  

     RELATIVE STRENGTH INDEX

The relative strength index (RSI) is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset. The RSI is displayed as an oscillator (a line graph that moves between two extremes) and can have a reading from 0 to 100. The indicator was originally developed by J. Welles Wilder Jr. and introduced in his seminal 1978 book, New Concepts in Technical Trading Systems.

CALCULATION OF RSI

Lets calculate RSI. The formula of RSI is as follows

RSIstep one​=100−[1+Average lossAverage gain​100​]

Computation of RSI 

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Date	Close	change	% change	loss	gain
7/22/2019 15:30:00	1280.5		0
7/23/2019 15:30:00	1272.85	-7.65	-0.5974228817	-0.5974228817	0
7/24/2019 15:30:00	1258.8	-14.05	-1.103822131	-1.103822131	0
7/25/2019 15:30:00	1232.3	-26.5	-2.105179536	-2.105179536	0
7/26/2019 15:30:00	1214.1	-18.2	-1.476913089	-1.476913089	0
7/29/2019 15:30:00	1211.15	-2.95	-0.2429783379	-0.2429783379	0
7/30/2019 15:30:00	1180.55	-30.6	-2.526524378	-2.526524378	0
7/31/2019 15:30:00	1166	-14.55	-1.232476388	-1.232476388	0
8/1/2019 15:30:00	1180.55	14.55	1.247855918	0	1.247855918
8/2/2019 15:30:00	1184.2	3.65	0.3091779255	0	0.3091779255
8/5/2019 15:30:00	1143	-41.2	-3.479142037	-3.479142037	0
8/6/2019 15:30:00	1128	-15	-1.312335958	-1.312335958	0
8/7/2019 15:30:00	1109	-19	-1.684397163	-1.684397163	0
8/8/2019 15:30:00	1151.95	42.95	3.872858431	0	3.872858431
8/9/2019 15:30:00	1162	10.05	0.8724336994	0	0.8724336994
8/13/2019 15:30:00	1275	113	9.724612737	0	9.724612737
8/14/2019 15:30:00	1288.3	13.3	1.043137255	0	1.043137255
8/16/2019 15:30:00	1277.4	10.9	0.8460762245	0	0.8460762245
			total	-15.16376902	17.91615219
				average gain	1.279725156
				average loss	1.083126358
				2.181510492	1.181510492
				45.83979787
			RSI	54.16020213

The RSI will rise as the number and size of positive closes increase, and it will fall as the number and size of losses increase. 

If RSI rises above 70 then it is overbought and if it falls below 30 then it indicates oversold.

Lets have a look at over bought and oversold positions.

We will learn about utilising RSI in other posts.