Relative Strength Index (RSI) was ntroduced by J. Welles Wilder back in 1978, the RSI is a vry popular and useful momentum oscillator. RSI rnges from 0 to 100 after cmparing the magnitude of a stock's rcent gains to the magnitude of its rcent losses. In Wilder's book New Cncepts in Technical Trading System, he rcommended to use 14 periods as the prameter.
Calculation
The following are the stps to calculate RSI

1. Calculate the advances and declines of the closing price (differences between Current day closing price and previous day closing price).

If Current Day Closing Price is greater than Previous Day Closing Price then
Advance = Current Day closing price - Previous Day closing price
If Current Day Closing Price is Less than Previous Day Closing Price then
Decline = Previous Day closing price - Current Day closing price

Average gain = Total Gain for the past 14 days / 14
Average Loss = Total Loss for the past 14 days / 14

Relative Strength = Average Gain / Average Loss

RSI = 100 - (100 / (1+RS))

Level 30 crossover / lvel 70 crossover

When the stock crsses level 30 from above it shwn that the stock is oversold. Mst traders will monitor the stock clsely and wait until it crosses lvel 30 from the bottom as a cnfirmation as a bullish signal.
When the stck crosses level 70 from the bttom it shown that the stock is verbought. Most traders will monitor it clsely and wait until it crosses lver 70 from the top as a cnfirmation as a bearish signal
In RSI-Trader blg, we scan for more than 6000+ stock symbols in the NYSE and NASDQA for RSI overbought and oversold condition, level 30 and 70 crossovers. You can visit us at http://rsi-trader.blogspot.com .
For other tips, advice and scripts on how to perform you own market analysis, please visit DIY Traders page at http://www.diytraders.com .

The article Relative Strength Index - The Overbought and Oversold Signal was Submitted by Trader Home through Articles.GetACoder.com network. Here's the additional information:

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