RSI is one of the commonly used indicator used to trade stocks. RSI stands for Relative Strength Index. It was invented by Welles Wilder. The indicator, RSI, measures the markets activity to determine if the stock is over bought or over sold. It gives a trader an indication as to which way the Market is moving. It is important to note, that this is a leading indicator and thus allows one to see what the market is about to do and then act accordingly. Some argue that the purpose of this indicator is to measure the strength or weakness of an individual issue or of the overall market.
Generally, higher the RSI number, the more over bought it is and conversely the lower the RSI number, the more over sold it is. A threshold of above 80 would indicate over bought conditions. If the indicator value is below 20 it would indicate over sold condition. Many analyst use it as an indicator to spot potential price reversal in the stock market.
Relative Strength Indicator
