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In most financial markets, one of the most technical indicators to date is the RSI Relative Strength Index. This indicator is primarily used in charting the strength and weakness of both the past and current state of the stock or market, in general. The closing prices of stocks in the most recent trading period shall also be taken into consideration as part of the overall analysis of the financial market.

It is considered as an oscillator which is used to measure the momentum of the price movements of stocks within the given period. The ratio of higher closes to lower closes is defined by RSI as the momentum. The RSI therefore calculates the momentum of certain stocks by identifying their positive and negative changes; so that the stocks get a higher RSI if they have had stronger positive changes in a particular time frame. Otherwise, the stocks get a lower RSI.

Developed by an American mechanical engineer, J. Welles Wilder, the RSI Relative Strength Index was first published in 1978 in a book and has since been a popular oscillator index used in many trading markets. The index is typically presented on a graph that shows, usually over a 14-day period, an upper line (usually 70) or overbought index, a lower line (usually 30) or oversold index and a  mid-line (usually 50).

It is important to know the principles behind this popular indicator. It was postulated that the rapid upward movement, at some point, of a particular price indicates that it is overbought. On the opposite end of the spectrum, the price is thought to be oversold if it shows a rapid downward movement at some point over a given period.

The strength of the forex during its most recent trading is indicated by the level of the RSI Relative Strength Index. The slope in the index is said to be directly proportional to how fast the price of stock changes over a given period. Meanwhile, the distance traveled by the RSI is proportional to how far the price movement of the stock.

It was believed that when the RSI shoots up past the 70 level the price is thought to be overbought. Conversely, the price is thought to be oversold if the RSI falls below the 30 level. It is thought to be neutral if the index reading falls between the two extremes. There is no trend if the RSI Relative Strength Index reading is 50.

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