Relative Strength Index (RSI)

Summary

Developed by Welles Wilder and it is one of the most popular momentum oscillators.

It is based on the comparison of the magnitude of recent gains to the magnitude of recent losses, over a specified period of time.

Wilder recommended a standard setting of 14 time periods (bars).

Calculation
RSI = 100 - 100
1 + Avg G/Avg L

where,

Avg G and Avg L is the average number of gains and losses over a specified period, respectively.

RSI ranges between 0 and 100.

Signals

RSI values above 70 indicate a bullish trend over the past 14 days and hence it is probable that a potential selling point has been reached. On the contrary RSI values below 30 confirm the formation of a downtrend and thus potentially mark a buying point. Values in the range of 30 to 50 and 50 to 70 indicate a weak upward or downward trend, respectively.