RSI - Easy to Use Momentum Indicator

Kaixiang
2023-01-17

Technical indicators are widely by traders to understand the market sentiment. These indicators provide clues as to how the stock price will move using different metrics. There are several popular indicators, such as Moving AverageConvergence Divergence (MACD), Relative Strength Index (RSI) and Stochastic Oscillator. 

There is no perfect technical indicator. Insteadof trying to use most of them in your analysis,pick one or a few that you find useful in making your trading decisions. For me, I find the RSIthe easiest to apply. 

So... what is the RSI? 

The Relative Strength Index (RSI) is a momentum indicator that measures the speed and magnitude of a stock's recent price changes. This helps to evaluate whether the stock is in an overvalued or undervalued condition. The RSI is displayed as an oscillator on a scale of 0 to 100. 

How do we apply the RSI?

The RSI can provide indication whether there is a potential trend reversal or pullback for the stock price. In other words, the RSI can signal when to buy and sell. Conventionally, a RSI reading of 70 or above indicates an overbought situation while a reading of 30 or below indicates an oversold condition.

Example of Oversold - $UnitedHealth(UNH)$ 

Example of Overbought - $UnitedHealth(UNH)$ 

However, it is important to also note that the RSI indicator can remain in the overbought region for prolonged periods while the stock is in an uptrend. Similarly, the RSI may also remain in oversold territory for an extended period when the stock is in a downtrend. This may beconfusing for new traders but complementing the RSI with trend lines or other indicators may help to provide greater clarity. 

Example of RSI in prolonged overbought territory - $McDonald's(MCD)$ 

Example of RSI in prolonged oversold territory- $Alibaba(BABA)$ 

RSI isn't limited to trading only - it can also be used for long-term investing

As a value investor, I focus more on buying fundamentally strong companies for the long haul. While this means a longer term investment horizon where price fluctuations are less critical as compared to trading, RSI can provide guidance (to some extent) on when to add or enter new positions for your shortlisted companies. 

Hope this article is of some help in your trading or investment journey. Best of luck to all myTiger friends in 2023! 

@TigerStars @CaptainTiger @Tiger_chat @MillionaireTiger @TigerEvents  

Modified in.2023-01-17
Introduce an Indicator to Decide When to Buy/Sell
Most of tigers want to learn about how to decide when to buy and sell stocks. We really need brilliant tigers to help us answer this question! ----- [TOPIC] Introduce one simple indicator to help us know when to buy and sell. [FORMAT] Explain 1. what is this indicator? 2. how to use this indicator? 3. what is the risk and advantage of this indicator? ----- [REWARDS] 1. One post with the highest quality will get a $10 stock voucher. 2. Three posts with the top 3 likes will get $5 stock voucher. 3. Every valid posts above 50 characters will get at least 50 tiger coins.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

  • melson
    2023-01-17
    melson
    it is best to use fast moving rsi with another indicator like stochastic indicator kdj which identify trend reversal or another momentum indicator like macd to confirm the reversal in momentum and hence trend.
  • SR050321
    2023-01-17
    SR050321
    Yeah part 2 please 😍 i dont really understand the overbought or oversold, now i have clearer pics ! Thanks 👍
    • SR050321ReplyKaixiang: 
      Lovely 😊
    • Kaixiang: 
      Glad to hear that it is useful though it was pretty much “superficial” in some sense. Haha. Maybe a part 2 would make it more complete [LOL]
  • LMSunshine
    2023-01-17
    LMSunshine
    Great post buddy❣️ Yes part 2 with photos like this please😬 The photo has 4 RSI readings, so you’re referring to the yellow one? 4 are yellow one, RSI 6, 12 & 24. How are they different?
    • LMSunshineReplyKaixiang: 
      Thanks loads❣️
    • Kaixiang: 
      Typically, i use RSI12 as it “smooths out” more than the RSI6. But i think it really depends on individuals (based on my limited understanding” [LOL]
    • Kaixiang: 
      Thanks buddy! am surprised that there’s so many requests for part 2. Haha. The different numbers (6,12,24) refer to the period (e.g. number of days if you are on daily chart) which the RSI is calculated.
  • Growth2022
    2023-01-18
    Growth2022
    Thanks for valuable information.  If I like to use RSI for 1 minute chart, how can I use RSI?
  • Wayneqq
    2023-01-17
    Wayneqq
    Nice post[Grin]
  • Kaixiang
    2023-01-17
    Kaixiang
    @DiAngel @MHh @pete13 @HelenJanet @SPOT_ON @Bonta @Boo2020 @koolgal @Big Cat @EKT @SR050321 @VivianChua @Wayneqq @wywy @Jaydenkho @Furore @AliceSam @TinyTiger @LMSunshine @Fenger1188 @melson @BenjiFuji @pekss @rL @JC888 @Mungerism @daz888888888 @CYKuan @Jo Tan @SirBahamut @Success88 @Universe宇宙
Leave a comment
52
1