RSI (Relative Strength Index)

This is a valuable key to decide whether you should buy stock or not when the markets are down.

In times where the markets are performing in a bearish way, we are all struggling to find the balance in holding, selling and buying.

What is the RSI of a stock?

  • The RSI is used in a Technical Analysis that measures the magnitude of recent price changes in a past period to help you identify oversold or overbought stock.

  • The standard is to use 14 periods to calculate the RSI value.

  • The RSI is displayed as an oscillator and have a reading between 0 – 100.

  • The RSI values of 70 or above indicate a overbought or overvalued stock and there may be a trend reversal or corrective pullback in price. As we all know stocks do not increase in value all the time and do correct themselves to establish a market average per industry.

  • An RSI reading of 30 or below indicates an oversold or undervalued condition and may be a good time to buy a stock.

Downtrends and Uptrends

During a downtrend, the RSI would peak near the 50% level rather than 70%, which could be used by investors to more reliably signal bearish conditions.

The RSI indicator can stay in the overbought region, 50% and up for extended periods while the stock is in an uptrend.

Use bullish signals when the price is in a bullish trend and bearish signals when a stock is in a bearish trend will help to avoid the many false alarms that the RSI can generate.

During trends, the RSI readings may fall into a band or range. During an uptrend, the RSI tends to stay above 30 and should frequently hit between 50 - 70. During a downtrend, it is rare to see the RSI exceed 70, and the indicator frequently hits between 50 - 30 or below.

Some traders interpret that an oversold currency pair is an indication that the falling trend is likely to reverse, which means it’s an opportunity to buy.

Some traders interpret that an overbought currency pair is an indication that the rising trend is likely to reverse, which means it’s an opportunity to sell.

I look at the following to assist me in making decisions regarding buying, holding or selling. When looking at the indicator section you will see “Company”, this is your starting point in making a decision. Please read the section regarding the financial analysis of a company.

I make use of Tradingview to look at the RSI for a specific entity but there are many other platforms you can use.

Please do your own research.

Happy Trading!

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