To The Moon

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