RSI ( Relative Strength Index) was introduced in 1978 by Welles Wilder. Another name for RSI which is widely used is price-following oscillator. When you look at Relative Strength Index it closely reminds you of stochastics.
It is forex technical indicator that evaluates latest gains and losses in order to figure out overbought and oversold conditions in forex market. Just like stochastics RSI ranges from 0 to 100. You don’t need to memorize this, but just for very curious minds below is its formula:
RSI = 100 / (1 + DP/ UP)
UP is a moving average of increasing price within selected period of time
DP is a moving average of decreasing price within selected period of time
The use of Relative Strength Index RSI is also similar to stochastics. Whenever you see the indicator going lower then 20, that hints for oversold. Whenever you see the indicator going higher then 80, that hints for overbought.
Relative Strength Index is one of the popular trading tools. It can help you tremendously to spot trend formation. The possible uptrend could be confirmed with RSI being above 50 mark and the possible downtrend could be confirmed with RSI being below 50 mark.