What is Relative Strength Index (RSI)
The RSI is an index utilized in technical analysis. It was first introduced by J. Welles Wilder in the 1970s in his book “New Concepts in Technical Trading Systems”.
RSI takes into account an asset's price fluctuations and the speed at which they occur and returns a value within a range between 0 and 100. It is calculated based on a 14-hour or 14-day time window.
Analysts could use the RSI in conjunction with other indicators to detect changes in market trends such as bullish or bearish reversals. If the RSI and an asset’s price are moving in opposite directions, this could be a potential sign of an upcoming reversals. For example, bullish divergence could be taking place if the price continues to decrease, reaching deeper lows, while the RSI troughs are increasing.
Traders could also use the RSI to tell whether the asset is oversold or overbought. An asset can last long in the “oversold” condition and there’s no precise way to tell how long it would stay in that state. It is usually deemed oversold if its RSI index is lower than 30. An asset in an oversold state might be a sign that its price could bounce back. It is not guaranteed, however. The overbought condition represents the opposite. Overbought assets achieve an RSI index greater than 70 usually.