Technicals
The Relative Strength Indicator is a technical indicator that is used to measure the price momentum of the stock that's being traded. The RSI shows the ratio of price movement on days the stock's price increases and compares that to the price changes on the days the stock's price falls. It plots the index on a level between zero and 100. It compares the days that a stock finishes up against when it finishes lower.
When using RSI, a stock is considered to be in an overbought state when the indicator reaches the 70 level. That's the place that RSI is telling a trader to consider selling their position. In a hot, bullish market the number is actually closer to 80.
When RSI reaches the 30 level, it indicates an oversold position, and offers a signal that it may be time to buy or add to a position. When conditions are truly bearish, the buying indication comes closer to the 20 mark.
RSI info by BetterTrades Charts
RSI will hook up or down to indicate a potential reversal of a trend. The hook is most significant when it occurs at the top or bottom of the panel. The RSI can help you make the proper trading decisions, but should not be used by itself. Big surges and drops in price can mess up the information that flows from RSI and could present false indicators to buy or sell. Used by itself, RSI is not a reliable tool, but used in conjunction with other technical analysis it can offer some excellent clues about a stock's direction.
