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Moving Averages Relative Strength Index or RSI

oscillator is an exchange rate that is measure the rate at which prices move .

Surge to solve problems line momentum. One problem is that a very sharp rise or fall can cause n days ago too violent movements in the line of momentum, but current prices are not displayed excessive changes.

It is therefore desirable to "smooth" these changes, taking into account that the momentum line did not offer a band of overbought or oversold. With the RSI solve these problems.

one hand, provides a measure the relative strength of price gains over losses thereof. In addition, allows comparison of the same value in different periods . This is why it is necessary to measure and RSI mormalizada lies between 0 and 100 , which means it can provide the levels of overbought and oversold.

The formula is:

RSI = 100 - 100 / [1 + (Average highs / Media Low)]

The relationship between the ups and downs gives the force on each value. The RSI can compare the two averages and expressed as percentage. If the average of low and increases are equal, the RSI has a value of 50%, meaning that the relative strengths are balanced. However, if the value of the RSI is above 50% means there is more bullish than bearish relative strength, and if less than 50% more bearish than bullish relative strength.

What is commonly used now the IHR with an average of 14 days , as if less (7 days) can provide false signals and 20-day moving averages are lost signals that occur in a shorter timeframe.

The interpretation of RSI is as follows: Since the RSI is a line that follows the graph, will show the maximum and minimum price that is forming. When the RSI line area exceeds 70% is considered that the value entered in overbought zone. Conversely, if is below the 30% area, it is considered that the value entered in oversold.

From RSI can also be done chartist analysis, ie triangles can be detected, supports, resistances, rectangles, etc.. One of the most important is the observation of the performance differences between the current market value and the RSI line. For example, if we observe a continuous rise in the price, and on the contrary, we observed an acceleration in the RSI is not commensurate with the market value, this would be a possible divergence that show a possible future change of the trend in value.