A Technical Approach To Trend Analysis: Practical Trade Timing for Enhanced Profits

Relative Strength Index (RSI)

The relative strength index is a momentum oscillator based on a created index value between 0 and 100. As long as the oscillator calculates out to the midrange, the current trend is not in danger; but, if it moves above 70, the stock is overbought, and if it moves below 30, it is oversold.

This applies to trends of all durations. Swing traders rely on RSI to track the daily trend and to look for confirmation of reversal found in price and volume signals. When RSI moves above 70 or below 30, it tells a trader that the short-term trend is likely to reverse. For secondary trends, the tracking mechanism is the same and might signal a return to a primary trend. However, in using RSI to track primary trends, a move into ...