● RSI concept

1.RSI is probably one of the most used indicators. RSI is the most representative momentum indicator.

2.Momentum is a physical term that means a source that can generate any force or action.

3.The strategy rising in the stock market with the expectation that they will continue their upward trend and rise further is called a momentum strategy.

4.In other words, a continuous upward trend in the past is said to have upward momentum. Also, when the overbought zone is reached, the upward momentum is seen as overheated and liquidation should be considered.

5.Momentum continues with inertia, but it is bound to break at some point.

6.RSi is widely used among the momentum indicators because it is the simplest, most popular, and easy to use. Through this, it is an indicator that helps traders determine the situation by determining whether the current stock price is overheated and whether momentum is increasing or decreasing.

7.However, as with all auxiliary indicators, you must clearly understand their meaning to use them correctly and avoid making mistakes when trading.

● RSI Definition

1.RSI is the ratio of the average increase to the average change because it is calculated by dividing the average increase during the period by the sum of the average increase and average decrease. In the words, there will be ups and downs over the period.

A high RSI means that the price rises a lot when it rises and falls less when it falls, meaning that the upward momentum is strong.

2.The opposite case means that downward momentum is strong. Generally, when stock prices are rising, the increase is large and the decline is small, and when they are falling, the opposite is true, so RSI moves in the direction of stock prices.

3.It is more important to move in the opposite direction, for example, if the stock price rises but the increase in each bar is not as high before (if there are many rising days, the stock price may rise), RSI will fall in the opposite direction of the stock price, which is a trend because the upward momentum has slowed even if the price rises. This can be seen as a signal of transition.

● Mathematical definition

1.RSI establishes a time periad, let’s call it T. It is calculated using only the price during this T peridod, and the price usually uses the closing price. In most charts, the closing price standard will be set as defult. Also, please keep in mind that although it will be expressed on a daily basis here, the 4-hour bar is calculated based on the price in 4-hour units, and the weekly bar is calculated using the weekly price. Please keep in mind that the expression in daily bar here is for convenience.

2.U: The increase in price for T days compared to the previous day’s price is defined as U(up) for each day.

3.D: The decrase on days when the price falls compared to the previous day’s price during t days is defined as D(Down) for each day.

4.AU: The average value of U over T days is defined as AU (Average Ups).

5.AD: The average value of D over T days is defined as AD (Average Downs).

6.RS: AU/AD, that is the value abtained by dividing AU by AD is defined as RS (Relative Strength).

7.RSI = RS/(1+ RS) or RSI = AU / (AU + AD) The result is the same even if calculated as follows. Usually, calculations are made using the equations 2 to 6, but the equation below may be easier to understand.

8.In other words, RSI is the average of the increases on days when prices rose during the periad divided by the sum of the averege of the increases and the average of the decreases.

9.If it only went up during this period, RSI is 1, and if it only went down, it is uasually used by multiplying it by 100. In this case, the maximum value is 100 and the minimum value is 0.

10.The period is 14 days. Usually 14 days is used.