Relative Strength Index (RSI)

Traders trade trends, and no trading software is better at predicting short-term trends than VantagePoint. With its proprietary leading indicators, VantagePoint, leads the industry in trend forecasting. One important and easy-to-use indicator is the Relative Strength Index (RSI) This leading indicator can help you find and confirm potential trades the trend changes which gives you the all-important edge you need to be successful.

The is another momentum indicator. It indicates the current and historical strength or weakness of a market based on the closing prices of completed trading periods. It assumes that prices close higher in strong market periods and lower in weaker periods. It then computes this as a ratio of the number of incrementally higher closes to the incrementally lower closes. It then compares the magnitude of recent price gains to recent price losses in to determine overbought and oversold conditions of a market. It is calculated using the following formula.

= Average of X days’ up closes / Average of X days’ down closes. X = whatever timeframe chosen. The most common timeframe is 14.

It is important to understand that the RSI is a “running” calculation and the accuracy of the calculation depends on how long ago the calculations started (timeframe). The first RSI value is an estimate – subsequent values improve on that estimate. Thus, calculating at a minimum of 14 days, and going up from there, provides more accurate RSI values.

The RSI is plotted on a scale that ranges from 0 to 100. A market is deemed overbought as the approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback. Likewise, if the RSI approaches 30, it is an indication that the market may be getting oversold and, therefore, likely to become undervalued. Both instances could mark a trend reversal. The centerline for RSI is 50. Readings slightly above or slightly below can give the indicator a bullish or bearish tilt.

Combining the indicator with any of the other proprietary leading indicators found in VantagePoint gives you, the trader, a powerful “heads up” on market direction. As any trader knows, to be successful trading markets, one has to have an edge, and the RSI in combination with any of the leading indicators in VantagePoint will give you that edge.

Learn how to interpret crossovers, divergence, and overbought/oversold conditions using momentum oscillator indicators.

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