The relative strength indicator, better known as the RSI (Relative Strength Index), is an oscillator type indicator used in technical analysis to predict price trends and know if an asset is overbought or oversold.
The RSI tries to predict a trend change in the prices of an asset (such as an action ), which is very useful to know when to invest in an asset. It usually provides fairly reliable signals, especially in lateral trends, which has made it one of the most famous indicators of technical analysis.
Another reason that has made RSI such a famous indicator is that it is very easy to use. Its value is always between 0 and 100, indicating that an asset is overbought when its value is above 70 and oversold when its value falls below 30.
If the action is at overbought levels, the theory says that there is a sell signal when the RSI crosses the 70 level downstream. If, on the contrary, the action is oversold, the sale signal occurs at the moment when the force index crosses level 30 upwards.
RSI> 70 -> Sales signal
RSI <30 -> Purchase signal
Although many investors consider it a very reliable indicator, it often creates false buy sell signals. Therefore, the RSI should be used as a complement to other technical analysis tools.
To better understand how it works you can see How is the RSI calculated? – Example