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The Relative Strength Index (RSI) is a technical analysis indicator used to determine if a stock is overbought or oversold. It compares the average gains of recent up days to the average losses of recent down days over a period of 14 days. To calculate the RSI, the daily price changes are noted as up or down over 14 periods. The average gains are divided by the average losses to get the relative strength (RS). The RS is then plugged into an equation to get a number between 0-100, where values between 30-70 are typical. The RSI should be recalculated daily to see how it changes over time as an indicator of future price movements.

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117 views2 pages

Encrypted Data Analysis

The Relative Strength Index (RSI) is a technical analysis indicator used to determine if a stock is overbought or oversold. It compares the average gains of recent up days to the average losses of recent down days over a period of 14 days. To calculate the RSI, the daily price changes are noted as up or down over 14 periods. The average gains are divided by the average losses to get the relative strength (RS). The RS is then plugged into an equation to get a number between 0-100, where values between 30-70 are typical. The RSI should be recalculated daily to see how it changes over time as an indicator of future price movements.

Uploaded by

venkatesh9966
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© Attribution Non-Commercial (BY-NC)
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By Jonathan Langsdorf, eHow Contributor
updated: February 7, 2010
x    
¦he relative strength index, or RSI, calculation is a technical price indicator that
many stock traders use to determine if a particular stock is overbought (priced too high) or oversold.
¦he relative strength calculation uses the recent daily price changes to calculate a number between
0 and 100. ¦he RSI of a stock calculates the relative value of up days to down price days.
Difficulty: Moderately Challenging

x   
1. 1

List the stocks daily price change for the last 14 trading days. ¦he classic RSI
calculation uses 14 days, but traders use anywhere from 9 to 21 days to fine tune
their results. If stock A closed on ¦uesday at $14.50, and closed on Wednesday at
$14.75, Wednesday's price change was a positive $0.25.

2. 2

Note the up days for the stock and add up the total price change for those days. Do
the same for the down days and total stock value change on those days.

3. 3

Divide both the up days total change and the down days total change by 14, the
number of days used in the calculation. ¦he results are the average daily upward
price change and the average downward daily price change.

4. 4

Divide the up average by the down average. ¦he resulting number is called the RS.

5. 5

Plug the calculated RS into the following equation: RSI = 100 - 100 X 1 / (1 + RS)
¦he resulting number should be between 0 and 100, and usually falls between 30
and 70.

6. 6
¦he RSI should be recalculated at the end of each trading day, dropping the data
from the oldest day and adding the current day's data. How the RSI changes over
time is the indicator of the future direction of the stock price.

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¦ips & Warnings
á Most stock charting software will calculate and chart RSI. ¦he method explained
in the preceding steps can be used to check the software, or calculate RSI for an
atypical time period.
á A single indicator like RSI should not be used to predict stock prices. ¦he trader
needs to be familiar with several indicators and look for agreement between
them.

Read more: How to Calculate a Stock's Relative Strength | eHow.com


http://www.ehow.com/how_5963173_calculate-stock_s-relative-
strength.html#ixzz13¦OHfsAGÊ

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