Relative strength index (RSI) is a technical indicator that measures recent gains and loses and shows how they affect a stock's current price. RSI is used by traders for the purpose of thestock's technical analysis.
The relative strength index (RSI) calculates a number between 0 and100. This number indicates buying and selling conditions; a high RSI indicates that the stock in question is overbought while a low RSI indicates that a stock is oversold. A high RSI in otherwise weak stocks is very strong indicator that a price is about to drop.RSI is determined by the following formula:
100 - (100/(1+Average of up closes or the day/Average of down closes for the day))
The industry average is between 70 and 80 when it comes to overbought conditions, Once the RSI levels out around 80, the RSI quickly begins dropping, creating an excellent opportunity for swing traders short sellers.
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