For intraday forex trading RSI or the relative stock index has been a popular indicator for buyers and sellers. The RSI generally varies between zero (0) to hundred (100). However, seventy (70) indicates overbought and thirty (30) indicates oversold.
A good RSI number is the one which lies in between. It is nearly average of the two.however the RSI indicators can be adjusted according to need such as if a security is repeatedly reaching the overbought level of 70 one may adjust this level to 80.
Next while focusing on the bull’s market, RSI number remains in between ninety( 90) and forty (40) where the zone of forty (40) to fifty (50) acts as the supporting zone. Similarly bear market the RSI varies between ten (10) to sixty ( 60) range where fifty(50) to sixty (60) zone is the resistance. These ranges are not absolute. It will vary depending on the RSI settings, security’s strength, and market undercurrents.
RSI indicators can also be generated by looking for divergences and failure swings of the stocks.
A trader can himself calculate the RSI number by the following formula :
RSI = 100 – [100 / ( 1 + (Average of Upward Price Change / Average of Downward Price Change ) ) ]
However, RSI is not merely a number for reference. A lot of underlying facts are involved, which one can understand and catch up with time and experience.