RSI – Basics

In the last section we looked at Moving Average crosses and using Moving Averages to determine the trend. In this section we will move on to a new type of indicator – the Oscillator. Unlike the MA, Oscillators tend to appear below your chart in a separate window. We’re going to take a look at one of the most common oscillators, the Relative Strength Index or RSI:

RSI looks at an instrument’s ability to close higher/lower over a given period. When RSI is above 70, is considered ‘overbought’ and when it’s below 30, it’s considered ‘oversold’. It’s important to note that just because a security is overbought/oversold, does not mean it’s going to reverse – Indicators can read overbought/oversold for extended periods of time. A sell signal does not occur until RSI crosses back from overbought/oversold into the 70-30 range: