What is the RSI indicator?
Relative Strength Index (RSI) is a technical indicator created by Wells Wider to calculate the comparison of market buying and selling power based on changes in stock prices during a specific period to determine the intrinsic strength of stock prices and predict the direction of future changes in prices.
How to see the RSI indicator to grasp the buying and selling points?
The RSI indicator above 80 is called overbought (meaning you can no longer go long); below 20 is called oversold (meaning you can no longer go short).
Under normal circumstances: the index is basically between 30-70. The advantage of the RSI indicator is that it is clear when it is overbought and when it is oversold, so that people can better grasp the timing of entering positions. When the RSI curve forms a high reversal pattern such as M head or triple top at a high level (above 50), it means that the upward momentum of the price has exhausted, and the price may have a long-term reversal. Investors should close their positions in time. When the RSI curve forms a low-level reversal pattern such as a W bottom or a triple bottom at a low level (below 50), it means that the downward momentum of the price has weakened, and the price may build a mid-to-long-term bottom. Investors can do more on dips to build positions in batches. The shape is just the opposite of the above picture, everyone should understand this well:
1. The RSI value is below 20, and it is a buy signal when it crosses the long-term RSI value of RS12 from bottom to top.
2. The short-term RSI value of RSI is above 80, and it is a sell signal when it crosses the long-term RSI value of RSI2 from top to bottom.
3. The short-term RSI value breaks through 50 from top to bottom, indicating that the price has weakened (not to do long orders).
4. The short-term RSI value breaks through 50 from bottom to top, indicating that the price has become stronger (empty orders will not be done temporarily).
5. When the RSI value is higher than 80 and enters the overbought zone, the price may form a short-term callback at any time.
The principle of RSI indicator
The principle of RSI is simply to calculate the power balance between buyers and sellers by means of numerical calculations. For example, if 100 people face a product, if more than 50 people want to buy, the price of the product will inevitably rise. On the contrary, if more than 50 people compete to sell, the price will naturally fall.
The theory of strength indicators believes that any price rise or fall will vary between 0-100. According to the normal distribution, it is believed that the value of RSI varies between 30-70. Usually 80 or more is considered to have exceeded Buy status, so the short-term price will fall back and adjust. When the value falls below 20, it is considered an oversold state, and the stock price will rebound in the short term.