Relative strength index, or most commonly referred to as RSI, is a technical momentum indicator developed and introduced by technical analyst J. Welles Wilder, Jr. to measure the speed and changes of how price moves in a security. It was first introduced in the book entitled New Concepts in Technical Trading Systems which was published on Commodities magazine in June 1978 and has since became one of the most popular oscillator indices.
To calculate RSI, the following formula is used: RSI= 100-100 / (1+RS) where RS = the average gain during a specific time over the average loss during a specific time. The principle of RSI is that it is thought than when a price moves very fast, the commodity is considered to be overbought, and when a price falls down quickly, the commodity is considered to be oversold.
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