Relative Strength Index (RSI)
The RSI is a momentum oscillator indicator and measures the speed and change of price movement by comparing market gains with losses and plotting it on a scale from 0 to 100.
Basically, if the RSI is below 30, it means the market is oversold and that the price will eventually increase. Once the reversal is confirmed, you can perform a purchase transaction.
Conversely, if the RSI is over 70, it means that the price is overbought and will soon diminish. After confirmation of the reversal, you can make a sale.
Level 50 is the median line separating the upper (upward) and lower (bass) territories. In an upward trend, the RSI is generally above 50, while in a downward trend, is below 50.
The RSI can be used to identify overbought conditions and overbooking, exchanges midline and commercial differences. But I use the RSI quite differently here. Let's check together ...
Apply a 5-period RSI (RSI 5) on the 14-period RSI default (RSI 14) and observe the crossings.
With the RSI 14, there are times when the market does not reach overbought or oversold levels before changing direction. A short-period RSI is more reactive to recent price changes, so you can show early signs of reversals.
When the RSI 5 crosses the RSI above 14, it means that recent prices are rising. a buy signal is generated.
When the RSI crosses below 5 and becomes lower than the RSI 14, it means that recent prices are declining. This is a sell signal.
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