Relative Strength Index: Your Step-by-Step Guide to Profitable Trading with the RSI Indicator

Author:Alton Swanson
Language: eng
Format: mobi
Published: 2014-08-31T23:00:00+00:00

Additional Things to Understand about RSI

There are several other things to understand about RSI:

• First, if the price rises every day during the period, then AvgD becomes 0. In this case, dividing AvgU by AvgD leads to an undefined result (division by 0). In this case, RSI is defined to be 100.

• Second, while the easiest and most common method of calculating RSI involves taking simple moving averages, some variants use exponential moving averages. There is also a special averaging approach called Wilder’s Smoothing Method that is similar to an exponential moving average but uses a different smoothing factor. This was invented by the creator of the RSI indicator and is named after him.

• Third, RSIs are not just calculated over 9-day periods. They can in principle be calculated over any period – for instance, an RSI calculated over 9 days is referred to as RSI 9, whereas one calculated over 14 days is referred to as RSI 14. In general, the longer the period, the more slowly the indicator responds to changes in price direction and momentum. RSI 14 is the most common look-back period and is the default on most trading workstations.

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