Description:
The Relative Strength Index (RSI) is a tool that measures the momentum and strength of price movements, helping traders and investors identify overbought and oversold conditions, potential trend reversals, and suitable entry and exit points. As a momentum oscillator, the RSI oscillates between 0 and 100, providing valuable insights into the current market conditions and price dynamics.
Input Parameters:
- Length: Number of periods used in a calculation.
- Upper: Presets to 70 which represents the upper boundary of the indicator.
- Lower: Presets to 30 which represents the lower boundary of the indicator.
- Price Source: The specific data points (such as open, high, low, or close) from each candle in a financial chart that an indicator uses for mathematical computations, enabling the calculation of metrics like the average over a specified period.
Use Case:
- Overbought/Oversold Conditions: When the RSI value rises above 70, it indicates that the asset may be overbought, suggesting a potential price decline. Conversely, an RSI value below 30 signifies oversold conditions, implying a possible price increase.
- Divergences: A divergence occurs when the RSI and price action move in opposite directions. Bullish divergence happens when the price forms lower lows while the RSI forms higher lows, indicating potential upward momentum. A bearish divergence occurs when the price forms higher highs, but the RSI forms lower highs, suggesting possible downward momentum. Divergences can help traders identify trend reversals and potential entry or exit points.
- Entry/Exit Signals: Traders often use RSI to identify possible entry and exit points. For instance, a trader might consider buying when the RSI crosses below the 30 level, indicating a move from oversold territory. Conversely, a trader might sell or short when the RSI crosses above the 70 level, signifying a move from overbought conditions.
This feature can be used in:
- Market Scanner
- Strategy Tester
- Multi-Factor Alerts
- Smart Checklist
Do you want to learn more? Check out our Learning Center Article.