Definition – What is RSI (Relative Strength Index)?
RSI (Relative Strength Index) measures the average gain during times when a company’s stock is trading up and compares it with the average loss when a company’s stock is trading down.
RSI is between 0 and 100. A very high RSI is considered to mean that a stock is overvalued, while a very low RSI is considered to mean that a stock is undervalued.
Formula – How to calculate RSI
RSI = 100 – (100 / (1 + (Average Gain During Up Periods / Average Loss During Down Periods)))
A stock has an average gain during up periods of $1.20 and an average loss during down periods of $0.57.
RSI = 100 – (100 / (1 + ($1.20 / $0.57))) = 100 – (100 / (1 + 2.1053)) = 100 – (100 / 3.1053) = 100 – 32.2030 = 67.797
Therefore, this stock has an RSI of 67.797
Sources and more resources
- StockCharts.com – Relative Strength Index (RSI) – An overview and description of relative strength index.
- Wikipedia – Relative Strength Index – Wikipedia’s entry on RSI. Includes methods for calculating it, as well as discussion of its usefulness.
- Fidelity – Relative Strength Index (RSI) – Fidelity’s introduction to RSI.
- Investopedia – Relative Strength Index – RSI – A summary and break down of RSI.