The Relative Strength Index (RSI) is a popular momentum oscillator used in technical analysis to measure the speed and change of price movements. It helps traders identify overbought or oversold conditions in a market, indicating potential buy or sell signals.
Key Features of RSI:
- Range: The RSI oscillates between 0 and 100.
- Overbought Level: When the RSI is above 70, it suggests that an asset might be overbought or overvalued, signaling a potential downward correction or sell signal.
- Oversold Level: When the RSI falls below 30, it indicates that an asset might be oversold or undervalued, possibly signaling an upcoming upward price reversal or buy signal.
- Neutral Zone: RSI values between 30 and 70 are considered neutral. A value around 50 suggests neither overbought nor oversold conditions, indicating a balanced market.
Calculation:
The RSI is typically calculated using the formula:
RSI=100−(1001+RS)RSI = 100 – \left( \frac{100}{1 + RS} \right)
Where RS (Relative Strength) is the ratio of average gains to average losses over a specified period, commonly 14 periods.
Usage in Trading:
- Trend Confirmation: An RSI trending upwards above 50 can confirm a bullish market, while an RSI below 50 can confirm a bearish trend.
- Divergence: RSI divergence happens when the price of an asset moves in the opposite direction of the RSI. For example, a price increase while the RSI decreases may signal a potential reversal.
In the case of Saga (SAGA), the RSI value of 43.765 indicates that the asset is neither in the overbought nor oversold zone, staying close to neutral, meaning it could still have room for upward movement without being overvalued.
