RSI: Relative Strength Index Deep Dive

Lesson Content

The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements, helping traders identify overbought or oversold conditions in the market. Developed by J. Welles Wilder, the RSI is displayed as an oscillator that fluctuates between 0 and 100. When the RSI value exceeds 70, it typically indicates that a stock may be overbought, while a value below 30 suggests it may be oversold. In the Indian stock market context, let's consider Reliance Industries as an example. During the bullish phase of 2020, Reliance's RSI crossed above 70 multiple times, indicating potential overbought conditions before some corrections occurred. Similarly, TCS showed an RSI below 30 in March 2020 during the market crash, suggesting oversold conditions that preceded a strong recovery. The RSI can also be used to identify bullish and bearish divergences. For instance, if a stock's price makes a new high but the RSI fails to surpass its previous high, it could indicate weakening momentum. Understanding RSI is crucial for Indian traders as it helps in timing entries and exits in the volatile NSE and BSE markets.