What Is the Relative Strength Index? Definition, Calculation & Example

What Is the Relative Strength Index (RSI)?

The relative strength index (RSI) indicates whether a security, such as a stock, is overbought or oversold. It’s a technical indicator that is a part of a group of measures known as momentum oscillators, which determines whether a stock’s movement signals an opportunity to buy or sell. Another popular oscillator used by investors and analysts is the moving average.

How to Interpret the Relative Strength Index

In the graph above for Netflix, the 1-year data show that there were roughly five instances in which the stock was seen as oversold and indicated a reversal for the price to turn higher, and four times when the stock was viewed as overbought and indicated a reverse to go lower. Each of these cases shows a reversal in direction after prices broached one of the levels.

The RSI in data table format is sufficient to tell whether a security is oversold, overbought, or neither. But showing the data graphically provides opportunities to use other measures in interpreting relative strength.

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