What is the Relative Strength Index?

Relative Strength Index Definition. The Relative Strength Index, or “RSI”, is a momentum oscillator used in technical analysis to measure the relative changes between the higher and lower closing prices to determine the velocity and magnitude of directional price movements of stocks, commodities or currencies. The popular oscillator was developed by Welles Wilder who identified the major strength of his formulaic approach as its divergence versus the underlying asset’s price. The RSI is plotted on a zero to 100 scale, and 70 and 30 vales are used as warning signals suggesting overbought and oversold conditions, respectively. The RSI is a leading indicator and works well in trending markets to signal that a change in direction of the trend is imminent. The RSI does not necessarily pinpoint timing, such forex traders often use the MACD lagging indicator in combination with the RSI to confirm the signals generated by the RSI. The RSI is also generally ineffective in ranging markets. The RSI is also popular since it can confirm a trend based on a crossover of its midpoint. Typical chart formations that demonstrate these two benefits are shown below with the RSI plotted on the bottom portion of the charts:

Charts Charts

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.