Stock trading can be a little tricky to understand, but there are tools that can help you make better decisions. One of these tools is called RSI, or Relative Strength Index.
RSI is a technical indicator that measures how strong a stock is compared to itself over time. It compares the average gain of the stock to the average loss of the stock. This helps you see if a stock is overbought or oversold.
An overbought stock is one that has gone up too much too fast and is likely to fall in price. An oversold stock is one that has gone down too much too fast and is likely to rise in price. RSI can help you identify these situations and make better trades.
To use RSI, you will need to look at a chart of the stock’s price. On the chart, you will see a line that represents the RSI. The line ranges from 0 to 100. A stock is considered overbought when the RSI is above 70, and oversold when it is below 30.
When the RSI is above 70, it’s a good idea to sell the stock. When the RSI is below 30, it’s a good idea to buy the stock. This is because the stock is likely to go up in price if it is oversold and likely to go down in price if it is overbought.
Another way to use RSI is to look for divergences. A divergence occurs when the stock’s price is going up, but the RSI is going down. This can be an early warning sign that the stock is about to fall in price. The opposite is true when the stock’s price is going down and the RSI is going up.
In conclusion, RSI is a useful tool that can help you identify overbought and oversold stocks. By using RSI, you can make better trades and increase your chances of success in stock trading. Remember to always do your own research and consult with a financial advisor before making any investment decisions.
