The RSI explained ! how to identify buy and sell signals
Hello everyone , as we all know the market action discounts everything :) I have created this short video to explain what is the RSI and how to use it to identify buy and sell signals with this oscillator , everything you need to know about this indicator is right here.
Its been around since the late 70s so its probably one of the more established oscillators out there .
So lets check out the formula and how the RSI works :
RS=100 -100/1-RS
RS (relative strength) average X day up / average X day down
So simply lets say we are using a 10 days average so we check how many days the price closed up and we add them and we divide by 10 which would give us the average X days up.
And we do the same for the average X days down but we calculate how many days the price closed down and then we add them and divide by 10 ,And after all of that has been calculated we will always get a value between 0% and 100%
And that's why the RSI is considered a bounded oscillator it means that the value will always be between 0 % and 100%
The oscillator has 2 major zones which are the overbought and oversold zones. Anything above 70% is considered overbought and anything below 30% the market considered oversold .
So when the market reaches overbought zone it tells us that the market has gone up to far and its due a bounce back down , and the same when it reaches oversold zone it means that the market has gone to far down and its due a bounce back up.
So looking to buy or sell when the market reaches oversold and overbought is one strategy .
But because the market moves a lot and reaches these levels so much this way is not as reliable that much , the better way to use the RSI is to check if it has a divergence with the market price.
what is a divergence you may ask !!!
A Divergence is when the price of the market is moving in the opposite direction of a technical indicator, such as an oscillator, Divergence warns that the current price trend may be weakening, and in some cases may lead to the price changing direction.
These signals of divergences doesn’t happen that often but they do give us a better way to use the RSI .
And there is it that’s everything you need to know about the RSI and how it works it’s a really simple oscillator and its one of the most popular oscillators used by technical analysts.
_____________________________________________Make sure to Follow, Like & comment for more content_____________________________________________
If you have any questions please ask
Thank you for reading & watching .
Its been around since the late 70s so its probably one of the more established oscillators out there .
So lets check out the formula and how the RSI works :
RS=100 -100/1-RS
RS (relative strength) average X day up / average X day down
So simply lets say we are using a 10 days average so we check how many days the price closed up and we add them and we divide by 10 which would give us the average X days up.
And we do the same for the average X days down but we calculate how many days the price closed down and then we add them and divide by 10 ,And after all of that has been calculated we will always get a value between 0% and 100%
And that's why the RSI is considered a bounded oscillator it means that the value will always be between 0 % and 100%
The oscillator has 2 major zones which are the overbought and oversold zones. Anything above 70% is considered overbought and anything below 30% the market considered oversold .
So when the market reaches overbought zone it tells us that the market has gone up to far and its due a bounce back down , and the same when it reaches oversold zone it means that the market has gone to far down and its due a bounce back up.
So looking to buy or sell when the market reaches oversold and overbought is one strategy .
But because the market moves a lot and reaches these levels so much this way is not as reliable that much , the better way to use the RSI is to check if it has a divergence with the market price.
what is a divergence you may ask !!!
A Divergence is when the price of the market is moving in the opposite direction of a technical indicator, such as an oscillator, Divergence warns that the current price trend may be weakening, and in some cases may lead to the price changing direction.
These signals of divergences doesn’t happen that often but they do give us a better way to use the RSI .
And there is it that’s everything you need to know about the RSI and how it works it’s a really simple oscillator and its one of the most popular oscillators used by technical analysts.
_____________________________________________Make sure to Follow, Like & comment for more content_____________________________________________
If you have any questions please ask
Thank you for reading & watching .
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