RELATIVE STRENGTH INDEX
The relative strength index is used to measure the internal strength of the instrument to be analyzed by comparing the closing values within the specified period.
The calculation is briefly as follows;
While calculating the RSI, within the selected period, first, the averages of the closings higher than the previous day are taken. Then, the averages of the lower closings in the period compared to the previous day. Relative power is obtained by dividing the average of the days with high closing and the averages of the days with low closure. 1 is added to the relative strength. The result obtained is divided by 100. The result is subtracted from 100, the value obtained is the RSI value.
It takes a value between 0 and 100. Reference values are generally used as 30 and 70. Commonly used period is 14. RSI overbought above 70 indicates oversold while RSI below 30 indicates oversold. Buy-sell signals are received by exceeding the reference values. In addition, buy-sell signals are received from its intersection with the 10-day simple moving average.
On the RSI, which is one of the overbought indicators, the formations seen on the price chart are more clearly visible.
Trend studies can be made on the price chart.
Support and resistance levels are seen more clearly than on the price chart.
Buy and sell signals from disputes are reliable.
Many analysts accept the 50 level as the equilibrium point and interpret the rising RSI above 50 as rising price movements and below 50 as falling price movements.
The chart below shows the trend line drawn on the RSI.
As can be seen in the chart, the trend we have drawn on the RSI is broken before the trend we have drawn on the price chart.
RSI and failed waves;
While the price makes a new high, the indicator fails to make the new high and diverges negatively with the price, and the subsequent trend change manifests itself.
As seen in the charts for sales, price peaks and discrepancies in price bottoms for buying are sought.
Buy and sell signals from RSI and moving average;
To show the importance of the RSI 50 level, we show the RSI 50 in blue and 50 in red, with the help of an expert advisor, in the chart below.
AUTHOR:
Ali Erkan TANACIOĞLU
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It goes below the 30 level and makes a bottom at the 1 point and returns to the 2 point as seen above, then it decreases but it cannot go down the 1 point, it rises again and the purchase is made at the point where it breaks the 2 point. This structure is called a failed wave.
If the decline after the 2 point does not fall below the 30 level, this is a strong situation. Similar structure as seen for purchase in the region of RI 30. It is seen for sale at 70 level.
Failed waves are considered strong signals in buying and selling. Of course, with the confirmation of buy or sell from other indicators.
Check the graphs below as an example of buy signals from RSI and mismatches.