The Relative Strength Index (RSI) is a momentum oscillator that measures the magnitude of price movements as well as the speed or velocity of these movements. RSI measures the changes in price over a time period. The formula divides the average gain the price has had over that time by the average loss it has sustained and then plots data on a scale from 0 to 100 and is plotted on a separate chart.
RSI values (purple) closer to 0 indicates overbought market conditions while values closer to 100 indicates oversold. Thresholds (yellow band) are usually assigned to RSI values, anything below 30 indicates sold, while above 70 can indicate overbought. For time period and trading intervals, lower thresholds may be used as a measure to reduce market noise or to produce a more confident signal.
RSI = 100 – 100/ (1 + RS)RS = Average Gain of n days UP / Average Loss of n days DOWN