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Select an Indicator:

General Information 1. Stochastic Oscillator 2. On Balance Volume (OBV) 3. Japanese Candlesticks 4. Relative Strength Index (RSI) 5. Bollinger 6. Standard Deviation 7. Linear Regression Channel 8. Parabolic SAR 9. Moving Average Convergence/Divergence (MACD) 10. Williams %R 11. Momentum 12. ZigZag 13. Moving Average 14. High Low Open Close (HLOC) 15.ADX 16.Fibonacci 17.Draw Tool

RSI (Relative Strength Index)

Definition: The values for this indicator vary between 0 and 100 which represent the internal force of a security. The name is misleading because it studies the force of a security price in relation with itself and not at all in relation with another indicator.

Why use the RSI charts

- Study the tendency of the security - Detect an inversion of tendency - Detect overbought and oversold situations

Analysis tools for the Relative Strength Index

1. The two dotted lines that are drawn above the RSI indicate that the security is in a : a. Overbought phase if it goes above the 70 line. b. Oversold phase if it goes below the 30 line. ( 70 and 30 are the default values the most currently used for financial studies made with the RSI) 2. In general we interpret this indicator in the following ways : a. If the RSI is above 50 the tendency is up-moving. b. If the RSI is below 50 the tendency is down-moving. 3. This indicator also enables us to visualize financial motifs like the " head and shoulders" or "double peak" effects which indicate the double Top, double Bottom movements. It is possible that these effects are not visible with the closing prices of the share itself.

Detailed analysis and preferences   ^

This indicator is very useful to detect tendency inversions, especially when there is a divergence between the peaks of the security price itself and the RSI peaks. Let us take for example Holderbank in June 1999 :

A first peak is reached the week of December 13th at 2162CHF, then a second peak is reached on the 18th of January at 2273CHF. These two peaks imply that there is an upward mouvement on the Holderbank chart. But, the RSI chart does not reflect this upward direction, on the contrary, it actually reflects a downward mouvement simply by the fact that the second peak is under the first for the same dates (above and then below the 70 dotted line). This indicator is significant in the sense that itz indicates us a month in advance that the tendency will be downward opn the longer term, as we clearly see in February. The values that the analysts advise you to use are 9 days, 14 days or 25 days. The smaller the numberof days used for the study the higher the volatility of the indicator.

Tips & Tricks   ^

The fact to take as a sell signal when the indicator passes under the 70 line and as a buy signal when the indicator passes under the 30 line can be a very bad strtategy for a long term investment. This mouvement indicates that the market is ready to reach a new peak in the coming days. But if the RSI does actually go above the 70 line it will definitely be a peak for the share.

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