The principle and calculation method of RSI indicator:
The relative strength indicator RSI is based on the principle of the balance of supply and demand in the foreign exchange market. It analyzes and judges the buying and selling power of the long and short sides of the market by comparing the amplitude of the price of a single currency or the size of the index of the entire market over a period of time. A technical indicator of the strength and weakness of the future market trends.
From the principle of its construction, the same as MACD, TRIX and other trend indicators, the RSI indicator analyzes the basic change trend of a single currency or the entire market index, and unlike MACD, TRIX, etc., the RSI indicator is Instead of directly smoothing the closing price of the product or the market index, first calculate the closing price of a single currency at certain times or the closing index of the entire index at certain times.
The relative strength indicator RSI is the ratio of the market’s increase and increase to a certain period of time. It is the quantitative and graphical reflection of trading power. Investors can predict the future price based on the market changes and trajectories they reflect. In practice, people usually use it in conjunction with the moving average to improve the accuracy of market forecasts.
The research and judgment of RSI mainly focuses on the value of RSI, the intersection of long-term RSI and short-term RSI, and the curve shape of RSI. The general analysis methods mainly include the range of the RSI value, the oversold and overbought situation of the RSI value, the position and intersection of the long and short-term RSI lines.
The variation range of RSI is between 0-100, and the strength index value is generally distributed between 20-80. RSI value Market characteristics Investment operation 80-100 Very strong Sell
Top 50-80 buy
20——50 Weak wait and see
0——20 Very weak Buy
The value of RSI indicator “Extremely strong”, “Strong”, “Weak” and “Extremely weak” here are just a relative analysis concept and a relative area. Some investors can also set them to 30, 70 or 15, 85. In addition, the judgment of different RSI parameters and different RSI values will be different.
RSI value overbought oversold
Generally speaking, the value of RSI above 80 and below 20 is the dividing line of overbought and oversold areas.
- When the RSI value exceeds 80, it means that the overall market strength is too strong, and the strength of the multi-party is far greater than the strength of the short-side. The strength of the two parties is very different. At this time, investors can sell to make a profit.
- When the RSI value is lower than 20, it means that there is more selling than buying in the market, and the strength of the short side is stronger than the strength of the many sides. After the aggressive attack of the short side, the market has fallen too much and is already in an oversold state. The price may be oversold. In the event of a rebound or a reversal, investors can open positions and buy long.
- When the RSI value is around 50, it indicates that the market is in a state of consolidation and investors can wait and see.
- For the definition of overbought and oversold areas, investors should be based on the specific situation of the market. In the general market, RSI values above 80 can be called overbought areas, and below 20 can be called oversold areas. But sometimes in the special ups and downs, the division of RSI’s oversold and overbought zone depends on the specific situation. For example, in a bull market or for bull stocks, the overbought zone can be set to more than 90, and in a bear market or for product oversold zone can be set to less than 10 (for this point relative to the parameter setting small RSI, If the parameter setting is large, it is difficult for RSI to reach above 90 and below 10).
Crossing of long and short RSI lines
Short-term RSI refers to RSI with relatively small parameters, and long-term RSI refers to RSI with relatively long parameters. For example, in the 6th RSI and the 12th RSI, the 6th RSI is the short-term RSI, and the 12th RSI is the long-term RSI. The intersection of the long and short RSI lines can be used as a method for us to judge the market.
- When the short-term RSI>long-term RSI, the market belongs to the bull market;
- When short-term RSI <long-term RSI, the market is a short market;
- When the short-term RSI line breaks through the long-term RSI line at a low level, it is generally a “golden cross” of the RIS indicator, which is a buy signal;
- When the short-term RSI line breaks down the long-term RSI line at a high level, it is generally a “death cross” of the RSI indicator, which is a sell signal.