RSI ( Relative Strength Index ).
RSI indicator is a technical indicator classified under Oscillators indicators used in financial markets analysis specially and forex market , and it’s measuring the velocity and magnitude of directional price movements .
indicator image :
RSI indicator shows Strength or Weakness for the market or for the symbol if we talk about forex market based on the current and historical price .
Indicator Formula :
Relative Strength Index uses the closing price most typically used on a 14 candle period to calculate the indicator value according to the equation :
First , indicator caculates RS Value according to :
Let’s consider that Up symbol refers to positive close candle and Dn symbol refers to negative close candle :
if current candle close higher than previous candle close then :
Up = Current candle close – Previous candle close .
if current candle close lower than previous candle close then :
Dn=Previous candle close – Current candle close .
RS value = exponential moving average for Up sum / exponential moving average for Dn sum
then the RSI line final calculation is
How To Use RSI Indicator ?
50 Level indicator :
RSI indicator measured on scale from 0 to 100 the more higher if the indicator value is above 50 level thats good signal for uptrend , if the value is below 50 level thats good signal for downtrend .
OverBought and OverSold Levels :
RSI indicator also indicates overbought levels which start from 70 level and higher and oversold levels starts from 30 level and lower , when the indicator value reach those levels it predicts for a good reversal signal .
see the image below :
different RSI indicators for Metatrader 4 platform :