The RSI is a momentum oscillator utilized in Technical Analysis that measures the speed and change of price movements to assess overbought or oversold conditions in the cost of a stock or other asset. It also helps to isolate overbought and oversold market conditions.
On a scale from 0 to 100, any reading below 20 to 30 is considered as an oversold condition while any reading above 70 to 80 is considered an overbought market condition.
RSI often forms chart patterns that may not show on the underlying price chart, such as double tops and bottoms, and trend lines.
Calculation
The basic formula is:
RSI = 100 – [100 / ( 1 + (Average of Upward Price Change / Average of Downward Price Change ) ) ]