The relative strength index commonly termed as RSI is the most common term used to point out the market conditions of temporary overbought or temporary oversold stocks. The RSI is basically a measure of the stock’s performance against its own self by comparing the strengths of its up days versus its own low ones.
This method trading strategy was developed by J.Welles Wilder in June of 1978, and have remained a popular one since then.
RSI is being widely used to trace the market condition for an Intraday forex trading. RSI indicates the how much the market is overextended or is under performing so that the ups and downs can be retraced well in advance.
The relative strength index acts as a technical indicator such that when the RSI oscillation is over 70, it indicates an overbought market while if the same is below 30 it indicates oversold conditions. However, some traders go beyond these safe limits and prefer the extreme limits of 80 and 20 respectively.
Based on these numbers one can buy and sell stocks in case of intraday trading and make good use of their money to gain maximum profit. However, the RSI is not just a mere buy and sell signal indicator. The RSI can provide you with the ability to gauge the primary direction of the trend.
This helps the trader to point down on the right stocks at the right time. A particular stock will never perform equally on every single day. Thus for an Intraday trader, it is important to narrow down on a handful of stocks and be ready to invest when the time is right, in order to gain maximum profit.
RSI is however not an absolute indicator of the market. Its biggest drawback lies in the fact that sudden or sharp price rise or movements can make the index go up and down repeatedly and thereby lead to false or erroneous signals. This at times could be misleading for the trader.
It takes quite a lot of experience to understand the RSI index and trade safe in the market.
We at ProRSI have a team of experienced traders to help you with all your trading needs.