Relative Strength Index

(RSI)
Cheat Sheet
The Relative Strength Index (RSI) developed
by Welles Wilder, is a momentum oscillator
that measures the speed and change of price
movements.
Today, RSI is one of the most widely used
Overbought/Oversold technical indicators
that traders use in their sub-charts. The RSI
oscillates between 0 and 100, and is generally
considered overbought above 70 and oversold
below 30.
However, these figures can be adjusted to better
fit the security and personal preference. The RSI
uses a default setting of 14-periods, and can be
measured in minutes, days, weeks, or months.
Therefore, as the number of trading days used in
the RSI calculation increases, the indicator is
considered to be more accurate.
 Bullish (Positive) RSI Divergence Signal
A Bullish RSI Divergence is a trend reversal
signal that occurs when the RSI and security
price divert from each other. In other words, a
security price makes a lower low while the RSI
makes a higher low. Therefore, technical
traders that can spot Bullish Divergence are
aware that a reversal is imminent, and follow
other technical indicators and candlestick
analysis for a buy entry. Also, with the RSI in an
oversold territory around 30, this helps
strengthen the buy signal.
 Bearish (Negative) RSI Divergence Signal
The Bearish RSI Divergence signal is the
opposite of the Bullish RSI Divergence pattern.
In this situation, the Bearish RSI Divergence is
observed when the RSI makes a lower high, and
the security price makes a higher high.
Therefore, technical traders that can spot
Bearish Divergence are aware that a reversal is
imminent, and follow other technical indicators
and candlestick analysis for a sell entry if taking
a short position or simply closing a profitable
trade. Also, with the RSI in an overbought
territory around 70, this helps strengthen the
sell signal.
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