Futures Charts
- Technical Analysis Help
RSI - Relative Strength Index
The Relative Strength Index (RSI) is a study introduced by
technical analyst Welles Wilder in his book New Concepts
in Technical Trading Systems published in 1978.
Wilder cites three reasons for using RSI:
- to avoid the erratically High values returned by
other oscillator-type indicators such as Momentum or
Rate of Change. Wilder sought some way to dampen or
smooth out the extreme points used to calculate the
oscillator.
- it always returns a value between zero and one
hundred, regardless of the asset it is applied to. This
allows one to identify the most active commodities by
identifying those in which the RSI is showing the
greatest vertical movement - either up or down.
- it is easy to calculate and keep track of. After
calculating the initial RSI, only the previous day's
data is required for the next calculation.
Wilder then goes on to point out five possible uses for
the RSI:
The first usage is with tops and bottoms. The Index
will usually top out or bottom out before the actual
market top or bottom, giving an indication that a reversal
or at least a significant reaction is imminent.
The second usage is with chart formations. The RSI line
will sometimes form patterns such as head and shoulders
tops or bottoms, pennants or triangles which indicate
breakouts and buy and sell points.
The third usage is called Failure Swings. These swings
occur when the RSI tops out or bottoms out, retraces
slightly to what is known as the fail point, shows some
indecision (sideways movement) and then retraces pass the
fail point.
The fourth usage is Support and Resistance. Areas of
support and resistance often show up clearly on the index
before becoming apparent on the bar chart.
The fifth and final usage Wilder points out is
Divergence. Divergence is a phenomenon where the RSI is
moving in the opposite direction of price.
Wilder uses fourteen for the period and Close for the
price in his work.
Wilder, Welles, Jr. New Concepts in Technical Trading
Systems. Trend Research. McLeansville, NC
Technical Analysis Studies Available to you
are:
You can adjust parameters of each indicator
to suit you.
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