|Relative Strength Index (RSI)|
The Relative Strength Index (RSI) is an oscillator which measures the movement speed in price change of an asset. It is an indicator which is widely used by many professional traders across the world.
This particular analysis tool’s calculation is based on 8 periods of average gain and average loss, in an attempt to determine overbought and oversold conditions of an asset. If oversold, the market/asset or pair might eventually push to high levels and if the pair goes too overbought, it might highly be pulled down to the bears. The calculation of the Relative Strength Index is quite complicated, but might be a really helpful trading indicator with a little bit of practice. Below is the calculation of the RSI:
RSI= (100) / (1+RS)
RS= Average Gain / Average Loss
Above, is an example of a Simple Moving Average going through the USDJPY pair. As shown by the blue line, it can be seen that it gives an average movement of the pair throughout the chart.
This analysis method is very helpful to traders. The latter might wish to study more about this indicator before using it.