Relative Strength Index (RSI)

Relative Strength Index (RSI) is a Technical tool in Stock market. RSI is a pre indicator of price moments of shares.

RSI rate between 0 to 100. When RSI is above 70 share price will come down when it’s below 30 share prices will go up.

Signals can also be generated by looking for divergences, failure swings and centerline crossovers. RSI can also be used to identify the general trend.

Calculation of RSI

                  100

    RSI = 100 - _______

                 1 + RS

        RS = Average Gain per day / Average Loss per day

It should be calculated based on 14 periods. Periods may be in the form of months or weeks or dates.

The very first calculations for average gain and average loss are simple 14 period averages.

First Average Gain = Sum of Gains over the past 14 periods / 14.

First Average Loss = Sum of Losses over the past 14 periods / 14

The second, and subsequent, calculations are based on the prior averages and the current gain loss:

Average Gain = [(previous Average Gain) x 13 + current Gain] / 14.

Average Loss = [(previous Average Loss) x 13 + current Loss] / 14.

Taking the prior value plus the current value is a smoothing technique similar to that used in exponential moving average calculation. This also means that RSI values become more accurate as the calculation period extends. Sharp Charts uses at least 250 data points prior to the starting date of any chart (assuming that much data exists) when calculating its RSI values. To exactly replicate our RSI numbers, a formula will need at least 250 data points.