Momentum indicators - relative strength index

As the name says, the relative strength index (RSI) shows the relative strength of the price and, along with the exponential moving average, it’s one of the top indicators used in trading.

The RSI is displayed as an oscillator ranging from 0 to 100, and it was developed by J. Welles Wilder Jr. in 1978.

It shows bullish and bearish price momentum. Typically, when the RSI is < 30, it’s considered oversold and when it is > 70, it’s considered overbought. Traders typically buy when the RSI is oversold (usually in confluence with other indicators) and sell when the RSI is overbought. We will get back to these values later on when studying their formula.

Here’s what it looks like in a diagram:

Figure 4.3 – Relative strength index

And here’s what it looks like in TradingView:

Figure 4.4 – RSI in TradingView

It looks easy...