KT RSI Power Zones Indicator
MT4/MT5 [Free Download]

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Understanding the Relative Strength Index (RSI)

The relative strength index (RSI) is a momentum indicator in technical analysis. The RSI calculates whether an investment is overvalued or undervalued by measuring the speed and magnitude of recent price moves.

The RSI can do more than identify equities that are overbought or oversold. It can also identify securities on the verge of a trend reversal or price correction.

It can advise you on when to buy and sell. An RSI reading of 70 or higher has historically indicated an overbought position. A value of 30 or less implies an oversold market.

How the Relative Strength Index (RSI) Works

As a momentum indicator, the relative strength index compares a security's strength on days when prices rise to its strength on days when prices fall.

Relating the outcome of this comparison to price action can provide traders with insight into how security may perform.

When combined with other technical indicators, the RSI can assist traders in making more informed trading decisions.

Calculating the RSI

The RSI is calculated in two parts, beginning with the following formula:

In this calculation, the average gain or loss is the average percentage gain or loss over a given period. For the average loss, the formula uses a positive value.

Periods with price losses are counted as zero in average gain calculations. Likewise, price increases are counted as zero in the average loss calculations.

How to use the RSI Power Zones indicator 

The Relative Strength Index is a versatile indicator that may identify overbought-oversold levels, positive and negative divergences, failure swings, and so on.

In general, RSI overbought situations indicate that a reversal is imminent, but overbought can also indicate strength and vice versa.

The RSI Power Zones indicator should be utilized with other indicators such as support and resistance to generate more robust and validated trade signals.