How Relative Strength Index (RSI) Misleads Traders | How to Use RSI Properly

Topic: How Relative Strength Index (RSI) Misleads Traders || How to Use RSI Properly Relative Strength Index, RSI is a momentum indicator that measures the magnitude of recent price changes to analyze overbought or oversold conditions. Relative Strength Index, RSI values are ranged from 0 to 100. The default time frame for comparing up periods to down periods is 14, as in 14 trading days. Traditional interpretation and usage of the RSI is that RSI values of 70 or above indicate that a security is becoming overbought or overvalued, and therefore, may be primed for a trend reversal or corrective pullback in price. An RSI reading of 30 or below is commonly interpreted as indicating an oversold or undervalued condition that may signal a trend change or corrective price reversal to the upside. But the traditional interpretation is often misleading. Often it has been seen that price continuously goes up even when RSI is above 70. It has also been seen that price of stock goes more down even when RSI is below 30. So trading with traditional RSI interpretation might bring bad luck for the traders. But Relative Strength Index, RSI can be used another way. For example a stock can be considered for investment when RSI is above 50 and other technical indicators are also positive. And a stock should be dropped out from the watch list when RSI of the stock is below 50 and other technical indicators are also negative. Presented by Shihab Alam Khan on behalf of Finance School Content Sources: Stockbangladesh.com

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