RSI : The Saviour

Hello Friends,

Today we will talk about an indicator that introduces us to very fine precisions of the market. We can make loads of money by using this indicator. You can predict whether it will go up or fall, just by using this indicator only. So, let's look at it. 

Points we are going to cover in this topic:

• Introduction to RSI
• How to find RSI's range and its use
• Market Indication
• Divergences

Introduction to RSI

RSI stands for Relative Strength Index. We can predict the direction of the market just by knowing the market's relative strength. Well, you guessed that by its full form, don't you? 

RSI's concept has given by J. Welles Wilder Jr. in his book named "New Concepts In Technical Trading Systems." 

So come with us, and we will introduce you to the amazing topic of RSI. 

Range Of RSI

RSI's range lies between 0 to 100. Generally, we can see its range between 20-80 but it can go under 20 when the market is very bearish and above 80 when it is strongly bullish. 

Well, we have seen what is the range of RSI. Now, we will discuss how one can find the range of RSI.

RSI = 100- [100/{1+(Average Gain/Average Loss)}]

Here, the average gain/loss we used is the average percentage gain/loss. The formula has a positive value for the loss. 

Now, you have seen a formula that describes how to find RSI. But this formula is for Professional Traders. For beginners, we have given a simple yet successful way to find the RSI range.

• When the value of RSI lies between the range of 20-40 then it is a bearish signal that means that there are full chances of the market to be crashed. Please read the graph carefully because the same range can be found just after the market crash. So, keep an eye always on the graph otherwise you will book a loss. 
• When the value of RSI lies between 40-60 then it shows a sideways trend. In general, it is also known as a non-trading zone. Because this is a kind of situation where you can not tell the next move of the market's graph.
• When the value of RSI lies in the range of 60-80 then it can be proved as a strong bullish move in the market and chances are that we can make a huge profit from it.

Observation of Grandfather, father and son method:

It is a special kind of method by which we can forecast the direction of the graph. As it is named, if the grandfather is walking at the right place, his son is also at the right place and following him then the child will also be going to the right place. The same thing for charts, if the monthly chart is showing a value of 60+, the weekly view is showing 60+ then it is confirmed that the daily chart's value is also 60+ 

Understanding Divergence:

Divergence:- Divergence is something that allows you to stop making a loss in the market. This indicates the opposite/changing direction of an asset in a prognosis view. 

RSI Divergences: 

1. Bullish Divergences: It occurs when an asset's trend line is going upwards but suddenly when RSI is coming down then it sends us the Overbought Signal. From there, the market starts falling. So, that's the work of a bullish divergence, 'to indicate the oversold signal before making any loss'.
2. Bearish Divergences: When an asset is falling down but RSI makes its move in the upward direction then it is also a 'signal of oversold' and the market may gain its height again. So, this type of situation may be detected by Divergences. 

A bar graph can be shown with RSI's trendline which shows us the approximate volume of buyers and sellers at that specific time. And yes, RSI works all like that.

Thank You,