Relative Strength Index RSI As one of the simpler indicators to use, the RSI is a great place to get started when learning to trade.Let's see how it works!

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The Relative Strength Index (RSI) is a technical indicator used by traders to analyze the momentum of a given security. RSI is used as an oscillator and helps traders assess whether a given security or asset has become overbought or oversold. The RSI is typically used in combination with other trading indicators, such as trend lines, moving averages, and Fibonacci retracements.

The RSI oscillates between 0 and 100 values and is calculated using the following formula: RS = (Average of X Days Upward Price Change)/(Average of X Days Downward Price Change). Typically RSI uses 14 days of price data. When the RSI moves above 70, it indicates that the asset has become overbought; when the RSI moves below 30, it indicates that the asset has become oversold.

Traders can use this information to identify entry and exit points for buying or selling a particular security or asset. For example, if an asset’s 14-day RSI moves above 70, then a trader might enter into a short position while at the same time taking profits on their long positions. Conversely, if an asset’s 14-day RSI moves below 30 then they might enter into a long position while taking profits on their short positions.

Another way in which traders use the RSI indicator is to identify divergences between price action and momentum readings. If prices begin to rise but its accompanying 14-day RSI reading remains low or flat, then this could be an indication that a reversal may soon take place in that particular stock or asset. Similarly, if prices start to drop but its accompanying 14-day RSI reading continues to remain high then this could also be an indication of potential reversal in that stock or asset's prices.

In addition to being used for identifying potential reversal signals in stocks and assets, traders can also use the RSI indicator for spotting divergence signals between different price movements within one particular market or sector. For example, if one sector’s prices are rising steadily while another’s prices are dropping sharply then this divergence could be spotted using an analysis of both sectors' respective RSIs - allowing traders to potentially capitalize on any discrepancies between them.

Overall, the Relative Strength Index offers traders valuable insight into momentum shifts within various markets and sectors - helping them make more informed decisions when entering into trades based off of both price action as well as momentum readings.

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