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Relative Strength Index - RSI
What does it mean?
A technical analysis indicator that compares the days that a stock finishes up against when it finishes lower.
The RSI ranges from 0 to 100, but a stock is considered overbought if it reaches the 70 level, meaning that you should consider selling. When it is a true bull market, an RSI of 80 might be a better level since stocks often trade at higher valuations. Likewise, if the RSI approaches 30, it is a strong buying indicator (20 in a strong bear market).
In Other Words...
The RSI is a big tool in momentum trading. The RSI can help you make some serious money, but be forewarned, it isn't a decision maker. Big surges and drops in stocks will effect the RSI, but it could just be a false buy or sell. The RSI is best used as a valuable compliment to your other stock picking tools.
Related Links
Introduction to Technical Analysis - Here is an easy-to-understand tutorial on the various tools used in technical analysis, including moving averages, RSI, Bollinger bands, stock chart patterns, and much more.
Related Terms
Indicator | Mechanical Investing | Money Flow Index - MFI | Relative Strength
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