Relative Strength Index

The Relative Strength Index or Relative Strength Index (RSI for short) is an oscillating indicator that was developed by Welles Wilder in 1978 . It is one of the most widely used indicators in technical analysis . Technically, the RSI belongs to the range compression oscillators ; it can assume values ​​in the range from 0 to 100 percent.

The RSI must be distinguished from the RSL indicator , the indicator of relative strength according to Robert A. Levy .

calculation

The indicator relates the upward and downward movements of an underlying asset over time. For this purpose, a moving average of the upward and downward movements is calculated and put in relation. Welles Wilder chose 14 days here (corresponding to α = 1/14 or N = 27 in EMA terminology). In addition, 7, 9 or 25 days are also common today. The shorter the period under consideration, the more volatile the indicator, but the longer periods of time also trigger fewer signals.

First, the sum of all positive and negative course changes is calculated:

${\displaystyle {\begin{aligned}{\text{sum}}_{\text{up}}(t)&:=\sum _{i=1}^{n}\max\{P(t-i+1)-P(t-i);0\}\\{\text{sum}}_{\text{down}}(t)&:=-\sum _{i=1}^{n}\min\{P(t-i+1)-P(t-i);0\}\end{aligned}}}$

Then the mean of the sums is taken:

${\displaystyle {\begin{aligned}{\text{avg}}_{\text{up}}&:={\frac {{\text{sum}}_{\text{up}}}{n}}\\{\text{avg}}_{\text{down}}&:={\frac {{\text{sum}}_{\text{down}}}{n}}\end{aligned}}}$

The RSI is then obtained with

${\displaystyle {\text{RSI}}:={\frac {{\text{avg}}_{\text{up}}}{{\text{avg}}_{\text{up}}+{\text{avg}}_{\text{down}}}}}$

As an alternative to the arithmetic mean, exponential smoothing can also be used.

signal

Stocks with an RSI 14 greater than 70 percent are considered "overbought", stocks with an RSI below 30 percent are considered "oversold". Some analysts adjust these values ​​depending on the stock market environment:

• in a bull market (uptrend): reference line at 40% (oversold) and 80% (overbought)
• in a bear market (downtrend): reference line at 20% (oversold) and 60% (overbought)

In general, reaching or exceeding the threshold values ​​in the direction of the middle range is seen as one of several possible buy or sell signals.

literature

• J. Welles Wilder, Jr .: New Concepts in Technical Trading Systems . Trend Research, Greensboro, NC 1978, ISBN 0-89459-027-8 .
• John J. Murphy: Technical Analysis of Financial Markets . 11th edition. FinanzBook Verlag, Munich 2014, ISBN 978-3-89879-062-8 , pp. 239-245 .

Web links

• Relative Strength Index Classic (RSIC). In: Tradesignal Online. 
• Calculation of the Relative Strength Index with EXCEL. In: ChartTec.de. February 25, 2019.