Relative Strength Index (RSI)

Relative strength index is a momentum indicator that measures how far the share price is from the equilibrium level. The relative strength index can take values between 0 and 100. The relative strength index can be calculated for different time periods, such as 10 days or 14 days.

A relative strength index of 100 means that the share price has been up for all days during the measurement period and a relative strength index of 0 means that the stock price has been down for every day in the measurement period. A stock is said to be overbought when the relative strength index is greater than 70 and a stock is said to be oversold when the relative strength index is lower than 30.

It is most common to calculate the relative strength index for 14 days. A buy signal is generated when the relative strength index rises above 30 from a lower level and a sell signal is given when the relative strength index falls below 70 from a higher level.