The Relative Strength Index (RSI) has been used by technical investors since its advent in the late 1970s. Technical investing is the utilization of data, price swings and momentum indicators such as RSI to determine appropriate times to buy and sell securities. RSI is a tool to help investors track average stock price highs and lows over a pre-determined time frame — often 14 days — and then use that information to plot opportunities for the stock to either break out, or rise above its threshold, or drop through its resistance level — its price bottom.

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Tracking Stocks Using RSI

Choose the time frame to implement the RSI calculation. When J. Welles Wilder first introduced the concept of RSI in 1978, his suggestion was to use a 14-day time frame for calculating RSI. Day traders and others have adapted this number to include seven to nine-day short-term figures, as well as 20- to 25-day cycles. The shorter the time frame chosen, the more volatile the RSI will be. This is great for day traders, but longer-term investors may be better served using 14- to 20-day cycles.

References

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