Chartanalysen Square - Indicators

Relative Strength Index (RSI)

The Relative Strength Index (RSI) is one of the "oscillators" family and is one of the most popular indicators in technical analysis. He "oscillates" 100-0, (bust) wherein the values between 70 and 100, and 30-0 (on sale) are referred to as extreme areas.

Was published by the RSI Welles Wilder, Jr. in his book New Concepts in Technical Trading System (1978).

The stored equation is:

RSI = 100 - 100/1+RS

          Durchschnitt der Schlusskurse von x Tagen mit steigenden Kursen
RS =   ––––––––––––––––––––––––––––––––––––––––––––––––––––
          Durchschnitt der Schlusskurse von x Tagen mit fallenden Kursen

The generated values are shown on a separate scale (mostly under the actual chart) as a line.
The typical oscillations of the oscillators can be evaluated amplitudes basically in three different ways.




1. Extreme ranges as input and exits

Achieved one of the RSI both extreme areas (70/30), this information can be used to close existing positions or to open a new position. It is important that other indicators, trends and resistances / supports will be considered!

An example: Extreme Areas

Extrembereiche im RSI

In the picture is shown as an example, that prices tend to "reduce" extreme values of the RSI. therefore, Price declines likely when the RSI trading above 70 and rising prices are expected in principle, when the RSI falls below 30.

2. Divergences

As divergences (contrasts) are not coincident developments between price and the indicator designated. If these divergences on at the extremes, the latest market trends not of the Indicator support! Thus, they are a good warning signal.

An example: Divergences

Divergenzen im RSI

In the picture you can see clear differences in the extreme ranges. While in the left section, the courses continue rise and new highs are formed the RSI stagnates at a certain level and in the subsequent Double top in the chart's RSI is already clear.

In the right pane similar divergences in the oversold region are shown.

3. Trendlines in RSI

In addition to extreme conditions and divergences are also normal trend lines and the analysis of certain Resistance / support areas as signal generators. As in the normal charts have shown that when RSI and can so certain developments "predict".




An example: Trends in RSI

Trends im RSI

In the search for profitable trading signals, the analyst should also draw trend lines on RSI range, a possible trend reversal early on. In the picture you can see, such as the uptrend line the RSI is broken earlier than that of the course!

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