Relative Strength Index(RSI)
RSI is an oscillator first introduced in 1978 Welles Wilder in Commodities. The RSI Compares the Magnitude of a stock's recent gains to the magnitude of its recent losses on a scale o to 100.When using RSI as an overbought or oversold indicator , Wilder recommended using levels of 70 or more as overbought & 30 or below as oversold.Generally,if the RSI rises above 70 it is considered bullish for the underlying stock or security.Conversely,if the RSI falls below 30,it is a bearish signal.
Concept
RSI is an oscillator, whose value oscillates between 0-100, calculated based on relative strength a measure of momentum. An N-period relative strength is the ratio of gains in the price in last N days, divided by the losses in last N days.
Use of RSI in Technical Analysis
Relative strength index is most reliable and useful trend indicator in Stock or Forex market technical analysis. Higher values of RSI indicate overbought market; where as low values indicate oversold market. 30 and 70 are usually set as thresholds for a buy and sell signal respectively. Buy/Sell signals are also generated by observing divergence between stock and indicator (A divergence is said to exist if the price moves in one direction and the indicator moves in opposite direction). Underlying stock usually reverses the direction and follows the direction of the indicator.
How to Calculate RSI In Excel
To calculate Relative strength index RSI you have to need historical close price of underlying security or stocks. Basically RSI value based on the exponential moving average of 14 days of average gain and average loss.
You can see live online excel sheet calculation from here : Online RSI Calculation Sheet
Or download Microsoft excel example sheet from here :Download Relative Strength Index (RSI) Formula Example in Excel Sheet
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