RSI Stock Analysis and RSI Signals

Developed by J. Welles Wilder, explained in the book "New Concepts in Technical Systems".

Relative Strength Index is the most popular/liked trading indicator & it's a momentum oscillator and a trend following indicator. RSI compares a price magnitude of the recent price gains against the magnitude of the recent losses price losses & plots this information on a scale of values which ranges between 0-100.

Relative Strength Index measures the momentum of indices; readings above 50 signify bullish momentum while values/readings below 50 center line signify bearish momentum.

RSI Indicator - Relative Strength Index Indicator

RSI is drawn as a green line
Horizontal dashed lines are plotted to identifying overbought and over-sold levels are i.e. 70/30 levels respectively.

Stock Analysis and Generating Trade Signals

There are several different techniques used to trade, these are:

50-level Cross over Signals

Buy trade signal - when the indicator crosses above 50 center mark a buy/bullish signal is generated.
Sell Signal - when the indicator crosses below the 50 a sell/bearish signal is given.

RSI Stock Indicator Buy Sell Signals - RSI Technical Index Indicator Analysis

RSI Stock Index Setup Patterns

Traders can draw trend lines and map out chart setups and patterns on the RSI. The Relative Strength Index often forms chart patterns such as head & shoulders pattern which might not have formed clearly on the price chart.

Indices Support/Resistance Breakouts

RSI is a leading indicator & can be used to predict the Support and Resistance Break Outs before price breaks its support/resistance level. RSI uses the swing failure signal to predict when price is about to break resistance and support regions.

Support and Resistance Breakout - Relative Strength Index Indicator

Swing Failure - Support and Resistance Break-out

Over-bought/Oversold Conditions in Indicator

Overbought levels above 80
Oversold- levels below 20

These levels can be used to generate signals like when RSI turns up from below 20 after oversold, buy & sell when the RSI crosses to below 80 after overbought, sell. These signals aren't suitable for trading because they are prone to a lot of whipsaws.

Divergence Trading Setups

Divergence trading is one of the technical analysis method used to trade reversals of the price trends. There are 4 types of divergences which can be traded and transacted with this trading indicator covered and discussed in the divergence tutorial on this site.

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