Relative Strength Index (RSI)

RSI = 100 -[100/1+RS], where RS = [average of x days up closes/ average of x days down closes]. Therefore, the RSI is the ratio of the average value of days with rising prices compared to the average value of days with falling prices–all recalculated to fit on a percentage scale ranging from 0% to 100%. Above 75%, the market is considered overbought, while below 25% the market is considered oversold. A falling RSI study indicates that the ratio of average rising prices to falling prices is decreasing. The 25% line is used as a trigger point for bullish signals. A bullish divergence would occur if the RSI study moved in the opposite direction of declining price activity. Bullish divergences at oversold levels are of considerable importance as they indicate a potential trend reversal. A rising RSI study indicates that the ratio of average rising prices to falling prices is increasing. The 75% line is used as a trigger point for bearish signals. A bearish divergence would occur if the RSI study moved in the opposite direction of rising price activity. Bearish divergences at overbought levels are of considerable importance as they indicate a potential trend reversal.

source :Investment Theory and
Application
--Technical Analysis
Professor:Dr.Lin
Students:Hung Pei-chi (正源國際法律事務所)
Yang Jin-Feng (玉山投信)
Winson Hung (UBS瑞銀投顧)

GBU ^.^