Relative Strength Index (RSI) is one of a many ways investors can tell if a stock is going to rise or not. The RSI is shown as an oscillator and can have a reading from 0 to 100. When the RSI of a company is 20 or lower, it is a good time to start buying stocks from the company. If the RSI is 80 or higher, it is a good time to sell from that company.
For example, consider Tesla. It is a good time to buy from TSLA when it is May 13, 2021, because the RSI that time was only 13.
Calculating The RSI
When it comes to calculating what the RSI is for a company, use the following formula:
RSI = 100 – 100 / ( 1 + RS )
where
RS = Relative Strength = trend price/ trending price.
Types of RSI
Golden Cross
This means that the company’s daily RSI meets the RSI 14 day average and the RSI 7 day average, and that analysts predict the company will continue to rise.
Death Cross
Death cross is basically the opposite of the Golden cross.
Top Divergence
This means that the RSI is very high; 60-100.
Bottom Divergence
Bottom divergence means that the RSI is very low; 0-20.
