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Welcome to our lesson on Relative Strength Index or RSI. This indicator was developed by Welles Wilder Jr. and is commonly used in the world of finance to identify price tops and bottoms. The RSI chart is scaled from 0-100 and typically uses key levels such as "30" and "70". It can also help us detect movements that may not be as obvious on a bar chart and warn of potential reversals through failure swings. Additionally, RSI can assist in identifying support and resistance levels and divergence between the indicator and price, serving as a useful reversal indicator. However, it's important to note that the RSI requires some lead-up time to be used successfully. Let's take a look at the formula for calculating RSI.
The RSI formula is rsi = 100 - (100 / 1 - rs), where rs is the average of x day's up closes divided by the average of x day's down closes.
