RSI indicator is very popular among technical analysis was first introduced by J. Welles Wilder in 1978 in his book entitled 'New Concept in Technical Trading Systems' and published in leading magazines Commodities (now Futures Magazine). RSI oscillator is having a low limit and the highest level, namely a scale of 0 to 100. Wilder recommends 'level above 70' as stated overbought area and 'level below 30' for oversold.
Wilder used as the standard period is 14 days. However, this period can be changed to a closer to be more sensitive or fatherly shor term trading purposes (eg to a period of 12, 10, 9 etc).
When the RSI line from top to bottom through the 'level 70', it will give a bearish signal. Instead expressed as a bullish signal when the line through to the top 'level 30'. Level 30-70 is often replaced by traders into level 20-80 in order to reduce bad signals obtained by the RSI.
In addition to usability that have been described previously, the RSI line deviates from the direction of stock price movements (divergence) can also be used as a buy signal and sell signal. In his book, J. Welles Wilder called it "Failure Swing". He also stated this as the most important in the signal generated by the RSI. When the RSI line is above level 70 (in overbought conditions) showed divergence, or unable to make higher highs as the price movement, then called a strong bearish signal. Conversely if there is divergence on the RSI line under level 30 (in kondsisi oversold) is called a strong bullish signal. In this situation, traders who wish to obtain further confirmation, may use the standard line was level 30-70 (or 20-80). The new signal is considered valid when the RSI line through those levels.
But keep in mind that many traders are sometimes misunderstood in terms of implementing this technique on the RSI. Expert technical analysis, John J. Murphy, in his work entitled 'Technical Analysis of the Financial Markets' also said the same thing. Line RSI is overbought area is not a sell signal for stocks that you already have, or even worse when you rush to sell short on the aham. This action is called early or premature exit signal. The reason is certainly because the RSI line could continue to fluctuate in areas such extreme conditions a very strong trend. When the RSI line crosses into the area, was solely to give the sign 'warning' to the traders to tighten monitoring of stock positions. Because in the area of 'danger zone'. The same if the line RSI is oversold territory. To clarify the explanation above, see at the picture.
RSI value calculation formula is:
RSI = 100 - (100 / 1 + RS)
RS = Average increase / decrease in average
The average increase = ((average increase before * (n-1) + last Improvement)) / n
The average increase I = Number of increase in n last days / n
Wilder used as the standard period is 14 days. However, this period can be changed to a closer to be more sensitive or fatherly shor term trading purposes (eg to a period of 12, 10, 9 etc).
When the RSI line from top to bottom through the 'level 70', it will give a bearish signal. Instead expressed as a bullish signal when the line through to the top 'level 30'. Level 30-70 is often replaced by traders into level 20-80 in order to reduce bad signals obtained by the RSI.
In addition to usability that have been described previously, the RSI line deviates from the direction of stock price movements (divergence) can also be used as a buy signal and sell signal. In his book, J. Welles Wilder called it "Failure Swing". He also stated this as the most important in the signal generated by the RSI. When the RSI line is above level 70 (in overbought conditions) showed divergence, or unable to make higher highs as the price movement, then called a strong bearish signal. Conversely if there is divergence on the RSI line under level 30 (in kondsisi oversold) is called a strong bullish signal. In this situation, traders who wish to obtain further confirmation, may use the standard line was level 30-70 (or 20-80). The new signal is considered valid when the RSI line through those levels.
But keep in mind that many traders are sometimes misunderstood in terms of implementing this technique on the RSI. Expert technical analysis, John J. Murphy, in his work entitled 'Technical Analysis of the Financial Markets' also said the same thing. Line RSI is overbought area is not a sell signal for stocks that you already have, or even worse when you rush to sell short on the aham. This action is called early or premature exit signal. The reason is certainly because the RSI line could continue to fluctuate in areas such extreme conditions a very strong trend. When the RSI line crosses into the area, was solely to give the sign 'warning' to the traders to tighten monitoring of stock positions. Because in the area of 'danger zone'. The same if the line RSI is oversold territory. To clarify the explanation above, see at the picture.
RSI value calculation formula is:
RSI = 100 - (100 / 1 + RS)
RS = Average increase / decrease in average
The average increase = ((average increase before * (n-1) + last Improvement)) / n
The average increase I = Number of increase in n last days / n
The average decrease = ((average decrease before * (n-1) + last drop)) / n
The average decrease I = Number of decrease in n last days / n
The average decrease I = Number of decrease in n last days / n
The decrease is considered a positive value in calculating the value of RSI
n = period RSI
n = period RSI
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