All language subtitles for 5. Relative Strength Index (RSI) A Better Momentum Indicator

All right, well, you may be actually saying to yourself something like, you know, Steve, momentum

or rate of change is nice, but I don't want to wait as long to buy or sell before it crosses the zero.

And I want to, you know, kind of get in there a little sooner, if that's true, than the very popular

RSI is for you.

So RSI or Relative Strength Index is a momentum indicator and it's a much faster than the rate of change

or trishul momentum as a signal to that the competing price changes might be happening.

So it's a good tool how a lot of people use it.

It's a good tool for Profit-taking recognizing I've maybe my securities gone up in price and I've got

some profit and now I'm watching this RSI to see what I might want to sell or take that profit out,

you know, because it's going to give me a little faster signal than, let's say, a moment.

The traditional momentum indicator, ROIC, it can be less reliable, though, for buy and sell signal.

So you have to kind of think about that as well.

It's good, but it might be a little bit less reliable in terms of, you know, deciding the actual

time to actually buy it or actually sell.

But it can give you an indication that something's changing, something's coming, you know, so you

can use the other indicators maybe to determine your buy and sell signal, like I'm going to buy or

sell based on this primary indicator.

But then I'll use something like RSI to kind of confirm that, say, yeah, this is a little less reliable,

but these are real reliable.

So when you use that RSI is an additional confirmation and then I'm going to make my trading move.

So that's where RSI can be really powerful.

Strong in that way to mention is part of the momentum family.

And so it means it's looking at the relative speed of the price changes or how is it accelerating the

accelerating?

And the difference is it's going to use averages over several days rather than a single price point.

So remember, from the traditional ROIC momentum, less than the rate of change.

It's basically if I was looking at 10 days, I would go back 10 days and look at the price there for

momentum in the system.

The platforms automatically calculate, but it's basically a 10 day in that example.

Look back in just that.

It doesn't care about what happens in between.

It's just that 10 day one RSI Snice where it's going to use the averages over that over that period

to kind of give you a better kind of look at first the signal in terms of price points.

And that is what helps it to be more more sensitive, let's say, than a typical ROIC and be able to

be more faster acting than traditional ROIC as well.

So for those who love math, you don't have to calculate this.

The the spray platform will automatically put your nice little lines and charts on your chart.

So but if you're wondering this is the kind of the calculation behind it, as far as there's a step

one and a step to to kind of figure out the RSI or relative strength or relative strength index is the

combined to do.

The one thing you want to take away from of those is you can see from the math part of it, RSI is what's

part of was momentum, but it's also part of the oscillator subcategories of family.

Basically what Australia does is it converts the positive converts to positive numbers between zero

and one half percent.

So we remember rate of change.

We had a zero line and we could be above zero or below zero.

This there's no zero line.

Well, there's a zero line, but there's nothing below the zero line is going to be all positive numbers.

And most of those ranges and most of those things you're going to see are going to range between 30

and 70 percent.

And when you're actually seeing things on a chart, you're going to see that.

Also, the default for RSI as far as how it was developed is 14 days, 14 trading days is the standard

for our site time range.

You can use other time ranges.

You could use, you know, 14 periods.

So it could be 14, you know, hours, 15 minutes, whatever you might want to do.

But the standard was around Beltzer on days, which is 14 days, a standard for an hour.

So if you go longer than that, you're going to see more false signals taking out of maybe a possibly

longer trend.

If you're if you're going longer and if you go shorter, you might see more you might experience more

frequent trading because it's going to give you signals to be by myself, by cell, by cell more frequently.

So 14 days seems to be the sweet spot when you're using an RSI.

And I would tend to recommend just staying with that.

It'll be a default in your trading platform.

You can change it, but that would be kind of the default.

And what I would recommend using to so what really RSI is telling us is it's going to really tell us

about overbought and oversold conditions.

That's a big thing that's going to tell us about.

So if you think about an overbought condition, you know, traders are thinking the current price,

right.

Current price rise trend is at an extreme right.

It's overbought.

The prices have gone up to the top and traders are starting to think, oh, it's starting to settle

down.

Now, it might be less people coming in to buy.

It seems a little overbought.

So we might be ready for a turnaround to happen at any moment where the prices are going to start falling

now.

So we might want to take our profits now.

We might be getting towards the peak again.

It's hard to predict the actual peak and trough of a price.

But, you know, the idea is you want to get as close as you can.

And so when you have this overbought condition, you're you're either slightly line.

It's going to cross above the 70 percent line.

So that's kind of the magic number of the one you kind of keep in your head.

We'll show you the examples here coming up.

But when it crosses about the 70 percent line that's showing there's an overbought condition.

And if you have if you own the security now, it might be time to sell.

You can use as a primary.

You can use the RSI as a primary tool to be watching for these overbought conditions.

Or it's also really good as a confirming indicator to with using with other indicators, oversold conditions

would be kind of the exact opposite.

You know, traders think the current price has fallen to an extreme.

It's gone way too far.

And there's few sellers right now and the price is relatively cheap and people are not willing to sell

anymore.

They just think it's gotten way too low.

So it might be ready for a turnaround in terms of going back up.

So buyers are starting to come back even as it starts to go back up, even more buyers to come back

in, particularly of a trend forms.

You'll start seeing a lot of buyers coming in and really drive that price up.

So with the RSI, a security would be oversold when the RSI crosses below the 30 percent line.

So above the 30, 70 percent line overbought, below the 30 percent line is oversold.

Again, you can use that as a primary or it's also actually very good as a confirming indicator.

Also know to in terms of overbought or oversold, that when trends are strong, the stronger the trend

in securities can be overbought or oversold for longer periods of time.

And that makes kind of sense, right?

We've already got this long period of the strong trend that's well-established.

People are going to be a little less reluctant to get off that train, to get off that train because

it already looks very good.

So by using RSI, we can kind of recognize, hey, the train might be coming to an end here or maybe

coming to the station, time to maybe sell my security, you know, so if we own it, let's say in an

overbought condition, like, oh, OK, you guys are still excited.

We've been having the strong trend for a long time.

I've got another indicator saying a turnaround might be coming.

And my our side is telling me a turnaround is coming, might be a great time to get out.

So that's how you can kind of how you can kind of use that.

As for that relative strength index, looking for those overbought and oversold conditions and that

70 percent in the 30 percent line are the key parts to that.

Let's take a look at that.

So if we look at this sample RSI chart here and as we know, the relative strength index, if where

the lines are crossing below 30 percent, that means it's oversold and would be a buying opportunity.

And if the RSA crosses above 70 percent, that's indicating that we're looking at an overbought situation

and a sell opportunity in the second example.

And the ROIC, of course, is related to the zero line.

So this is not on here yet.

But we'll talk about the comparison with the rate of change in a moment here.

But as you can see in this particular one, it never does get to the 30 line.

It never does.

When it gets close, it gets around 50 percent, which is an indecisive area.

It could go either way.

But if we look at this particular chart, it is telling us that there are periods where it's above 70.

You can see on the far right where it's upper left to its eighty three point one one.

That's the actual measure.

So not only is it above 70, it's actually quite above 70.

And in this particular chart color is it in which is nice to be able to visualize that easily as well,

too.

So those would be the attrition would be like a cell type opportunity when you see that and we use the

same security and now we put below there aside, we put the RLC, you can see how they follow along

very similarly.

You know, as far as the movement of the lines are very similar in pattern of the ROIC, of course,

is going to use that zero line.

And if it crosses above the zero line on the ROIC, as we call that's a bicycle, it crosses below zero

C, that is a down or up uptrend single.

And if it crosses below the zero line, that's a downtrend signal or a cell type signal.

Now, if we look at these together, one thing that you'll see here is you notice how in the arrow,

see how it goes above and below the zero line, pretty frequently there in the middle.

That's that whipsaw effect where it's going whipping up above and below the line, causing a lot of

frequent buy and sell signals.

And the RSI above does not have that.

Remember, there are signs that 70 and 30, if you look at the same part of the chart, there's no buy

and sell signals.

It's really, truly showing that there's a period of decisiveness.

So you wouldn't be as actively trading, would be potentially taking on more either for fees or more

potential for, you know, short term losses around this because it's filtering all that out with the

RSI.

And that's why a lot of people really prefer the RSI from that aspect is it does tend to take out those

those whipsaw actions, as you can see in this example here.

So our size relative strength index is extremely popular.

Many times it is a default.

You know, when you go into a trading platform and they automatically put things like candlesticks in

your charter, they automatically put other types of indicators in your chart or above or below the

chart.

RSI is a very popular one that sometimes is a default.

So that means it's very popular, very useful.

A lot of traders are looking at it and a lot of people use it as.

Sometimes the primary, but a lot of times, you know, I like to use it as a confirming, confirming

something else, so RSI is great.

So take a look at RSI as part of being part of that whole momentum indicator family.