The Relative Strength Index (RSI) is a technical indicator used in financial markets to measure the magnitude and speed of price movements. It is a momentum oscillator, typically measured on a scale from 0 to 100, that compares the magnitude of recent gains to recent losses to determine overbought or oversold conditions of an asset.
The RSI calculation involves taking the average of the percentage gains and losses over a specified time period, typically 14 days. This average is then utilized to determine the strength of the asset's price movement.
A reading above 70 on the RSI scale suggests that the asset is overbought, indicating that it may be due for a potential reversal or correction. Conversely, a reading below 30 suggests that the asset is oversold, signaling a potential buying opportunity.
Traders often use the RSI to identify potential trend reversals, confirm the strength of an ongoing trend, or generate trade signals. However, it is essential to supplement RSI analysis with other technical indicators and fundamental analysis to make informed investment decisions.