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The Relative Strength Index (or RSI) is a very common oscillator, developed by Welles Wilder in 1978.The RSI, despite its name, compares the internal strength of only a single security. 9 day and 25 day RSIs are most popular nowadays, although Wilder himself preferred a 14 day period (smaller periods imply more oscillation!). The usual method of analyzing the RSI is to spot divergences between new price highs and a falling RSI, which suggests a reversal is coming. If the RSI falls below its most recent trough, it makes a "failure swing." - considered a confirmation of the coming reversal. Day trading systems empoying the RSI are many and varied, all seem to be scalping systems, making them suitable only for hard-core Level II traders.

As an indicator, it has generally 5 main applications, namely Tops & Bottoms: The RSI usually tops out above 70 and makes a bottom below 30, forming these a little before price follows suit. Chart Formations: Like price, the RSI can forms chart patterns (head and shoulders, triangles etc) even if such patterns are not actually visible in price action. Failure Swings: the RSI breaks above a previous high or falls below a recent low. Support and Resistance: The RSI can sometime illuminate internal support and resistance better than price itself. Divergences: as discussed above. To calculate the RSI, divide an average of upward price change by an average of downward price change, add 1 to it, divide the resulting figure INTO 100, then take the result away FROM 100. .

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