RSI indicator explained simply and understandably. // RSI tutorial, RSI trading strategy for stocks, rsi indicator settings basics how to use relative strength index for dummies youtube david moadel
welcome to looking at the markets with David Modell today I want to give you an
introduction to RSI so here we go what is RSI well RSI is relative
strength index it's a technical indicator for stocks or ETFs or
commodities currencies etc it was featured by J Wells Wilder in the 1978
book new concepts in technical trading systems here is his formula for the RSI
in case you're curious thankfully you don't need to know it in order to use it
so in case you're curious about the math behind RSI there is the formula RSI is
an oscillator which is just a fancy way of saying that it's a line that goes up
and then down then up and down and so on it's also a momentum indicator which
means that it indicates the general overall direction or trend of a stock or
ETF or whatever so when the RSI is going up that means that the stock price is
trending upward when the RSI line is going down that means that the stock
price is generally trending downwards it's very often used as a overbought or
oversold indicator meaning that it will tell you when a stock is overbought like
here and here and overbought means expensive okay means it's at a high
price or when it's oversold like here and here and here and oversold is just a
fancy way of saying that it's relatively cheap or it's on sale or a bargain etc
medium term or swing traders will often use the RSI 14 for the 14 period RSI and
you can see we have it right here RSI 14 which calculates the RSI using
the most recent 14 days on the daily candlestick chart and all these charts
are coming from stock charts calm because I wanted to give them credit all
right so this is an example of the 14 period RSI
a popular strategy is to wait until the RSI goes below 30 which is considered
oversold or cheap so if this is the 30 line here that horizontal line here okay
and you can see here the RSI line went below 30 okay it actually went to about
20 or so so a popular strategy is to wait until the RSI goes below 30 which
is considered oversold or cheap then wait until it comes back up above 30 so
here it is and it came up back up out of oversold territory back above 30 and
then buy the stock so you can buy it right here when it goes back up when it
goes below 30 and then goes back up above 30 a lot of people will buy here
people who own the stock might wait until the RSI goes above 70 and here's
the 70 line okay and you can see here that the RSI line when it's hard to see
but it it went a little bit above 70 right here okay so people who already
own the stock might wait until the RSI goes above 70 which is considered
overbought more expensive and then wait until it goes back below 70 out of
overbought territory and then they might sell the stock okay so when above 70 a
little bit and then went back down below 70 and they might sell it here if they
already own the stock if they are into shorting or short selling then they
might even might possibly even short or short sell the stock after it goes up
above 70 and then back below 70 they might sell or short sell it here
all right so we're going to use SLV which is an ETF or exchange-traded fund
representing the price of silver okay and this is the daily candlestick chart
each candlestick here represents one day of price action and so we've put the RSI
below the price below the candlesticks okay and so as you can see if you had
all right let's say you had waited until the RSI 14 period went below 30 into
oversold territory and then popped back above 30 out of oversold territory and
if you had bought here you would have bought right about here and if you had
held on you would have enjoyed a pretty good profit here pretty good run-up
alright and if you're into you know selling or short selling using the RSI
then you might have let's say you already already owned SLV and you wanted
to know when to sell it you could have waited until it went above 70 and then
popped back down below 70 out of overbought territory right about there
which would be right about here okay and so if you already owned SLV you
might have decided to sell it here because of the RSI indicator and that
would have been a good decision because pretty soon afterward it went down a lot
and you might have even shorted it here or short sold it and that would have
worked out pretty well if you had taken your profits around here the highest the
RSI can go is 100 and the lowest it can go is zero though it rarely goes that
far and let's take another look at SLV as you can see you know if this is ten
then zero would be you know way down here and it doesn't often go to zero and
if this is 90 then 100 would be way up here and it would have to be really
overbought or expensive to go up to a hundred and as we know it oscillate
between 0 and 100 and more often between 30 and 70 or oversold and overbought you
don't have to use the 14 period RSI as you can change the look-back period to
any number for example you could use the RSI 5 period to see the short-term trend
and you will get overbought and oversold signals more frequently for a longer
duration trend you could use a bigger number such as the RSI 30 and so you can
adjust the the period there alright I hope this is helpful this was just an
introduction there's much more to learn about RSI and other indicators so please
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educational videos and if you'd like to contact me if you have questions or you
want some help putting together a trading plan or
learning about the technical indicators or anything we've talked about today you
can email me at any time my name is David Modell and my email address is
David Modell at gmail.com thank you so much for watching and listening and I'll
talk to you again soon
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