Beginner Must Learn: RSI Index Analysis Of Stock Terms

Strength and weakness index RSI

Strong and weak indicators were first applied to futures trading. Later, people found that in many charts and technology analysis, the theory and practice of strong and weak indicators are very suitable for short-term investment in the stock market, so they are used in the measurement and analysis of stock rise and fall. The similarities between foreign exchange trading and futures trading and stock trading are that the rise and fall of the exchange rate ultimately depends on the supply and demand. Therefore, the index of strength and weakness is also widely used in the analysis of foreign exchange quotations. Later, investors also made the formula of RSI into computer program. The operator can get the RSI value if he input the exchange rate data to the computer everyday. At present, charts and analysis of Reuters and De Li financial chart analysis can take out the trend map of RSI.

　　 1. The principle of RSI

The principle of RSI simply refers to the comparison of power between buyers and sellers by means of digital calculation. For example, if 100 people are facing a commodity, if more than 50 people want to buy it, the price will rise. On the contrary, if more than 50 people are competing to sell, the price will fall naturally.

The strong and weak index theory holds that any market price rises or falls, all changes between 0-100. According to the normal distribution, the RSI value is mostly changed between 30-70. Usually 80 or even 90 times are considered that the market has reached Overbought, so the market price will naturally fall back. When the price falls below 30, it is considered to be oversold (Oversold), and the market price will rebound.

　　 Two, the advantages of RSI measurement method

(1) we can see clearly the intentions of buyers and sellers.

When to show overbought state and when the oversold state is clear at a glance, so that people can better grasp the timing of buying. However, any analytical tool has its advantages and disadvantages. Technical analysts often warn people that the analysis of RSI can not fall into the quagmire of formulization and mechanization, because everything has a special situation. RSI is more than 95 or less than 15. It is not surprising that no one should enter the market below 30, and then sell it over 70.

(two) all kinds of graphs that can form histogram.

Such as head shoulder top, double top double bottom triangle, flag type, magnifying type, Support line Resistance line.

The calculation of RSI usually takes 14 days as a cycle, taking the rise as the sum of the buyer's power, and the magnitude of the decrease as the sum of the seller's power, and judging the future trend of the exchange rate is the result of the comparison of the two forces.

　　 Three. Calculation of RSI

The formula for strength and weakness is as follows:

RSI=100-[100/ (1+RS)]

The average value of the rise in RS=14 days' closing price is the average value of the closing price of /14 within days.

For example:

If the recent 14 days of ups and downs are:

The first day rose 2 yuan, the second day fell 2 yuan, third to fifth days each liter 3 yuan; sixth days fell 4 yuan seventh days to 2 yuan, eighth days fell to 2 yuan;

Then, the steps of calculating RSI are as follows:

(1) add up the number of 14 days and divide it by 14. The total increase in the preceding case is 16 yuan, divided by 14 to 1.143 (accurate to three after the decimal point).

(two) add the number of 14 days down and divide it by 14. In the preceding example, the total amount dropped by 23 yuan divided by 14 to 1.643 (accurate to three after the decimal point).

(three) find out the relative intensity RS, that is, RS=1.143/1.643=0.696% (accurate to three after decimal places).

(four) 1+RS=1+0.696=1.696;

(five) divide 100 by 1+RS, that is, 100/1.696=58.962;

(six) 100-58.962=41.038.

Results for 14 days. Strength and weakness index RS1 is 41.038.

The RSI value of 14 days on different dates is of course different. Connecting different points is the locus of RSI.

Five different uses of RSI:

1) vertices and bottom points - 30 and 70 are usually overbought and oversold signals.

2) divergence - when the market hits a new high (low), RSI is not at a high level, which usually indicates that the market will reverse.

3) support and resistance - RSI can show support and resistance levels, sometimes more clearly than the price chart, support and resistance.

4) price trend patterns, compared with price charts, the price trend patterns such as double top and head shoulder are clearer on RSI.

5) the turning of the peak. When the RSI breaks through (higher or lower than before), this may indicate that the price will mutate in the same way as other indicators. RSI must be used in conjunction with other indicators, and can not generate signals separately. The confirmation of the price is the key to determining the market price.