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Track a Stock’s Momentum with the RSI Indicator

While stock price movements on stock charts alone can tell you a lot about the likely future movement of the stock, additional calculations can yield indicators that bring out hard-to-see information about the underlying trends in the stock’s price movement. One such indicator is the Relative Strength Index or “RSI indicator,” and in this article I’ll explain what it is and how to set it up in Stock TickerPicker.

How the RSI is Calculated for Technical Stock Analysis

The RSI indicator measures the speed and change of price movements. It is calculated like so:

RSI=100- 100/(1+ave gain over X periods/ave loss over X periods)

where the default value for X is usually taken to be 14 periods. The more that large gains have dominated over large losses during the past 14 periods, the smaller the number subtracted from 100 will be and the closer to 100 the RSI will be. On the other hand, the smaller the average gain is relative to the average loss over the last 14 periods, the larger the number subtracted from 100 will be and the closer to zero the RSI will be. Thus, the net effect of this is to give you an oscillating indicator, moving between 0 and 100. You can plot this on a chart over time, showing the RSI movement.

 

How to Interpret the RSI Indicator

When the RSI is reading less than 30, it is generally considered “oversold” (heavy losses relative to gains) and is signaling a buy. When the RSI is reading greater than 70, it is generally considered “overbought” (heavy gains relative to losses) and is signaling a sell.

How to Configure an RSI Indicator in Stock TickerPicker

Stock TickerPicker shows you the RSI by default on the stock chart screen:

You can see the RSI chart circled. It is a blue line that moves between 0 and 100 over time.

You can also custom configure how many loopback periods the RSI uses. The industry standard is 14 periods, but you could use a shorter number to get a more sensitive RSI (perhaps with a more volatile stock) or a longer number for less sensitivity. This is configured in Settings, where the RSI can be displayed as the top indicator or the bottom indicator below the main stock price chart:

Once you pick which indicator is displaying the RSI, you then can tap the “Configure” button and you’ll get an RSI configuration screen:

You can configure not only the periods but also where the overbought/oversold indicator lines are drawn. This gives you powerful customization capabilities for the RSI.

Summary

So now you’ve learned what the RSI is and how it signals whether a stock is overbought or oversold. You’ve also learned how to configure the RSI in Stock TickerPicker for iOS. In our next post, we’ll walk you through some examples of using the RSI to do technical analysis on some stocks. Stay tuned!

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