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FT4Web by Investors FastTrack |
Interpreting RSI on the I Chart
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Interpreting RSIRSI is a trading-range momentum indicator developed by Wells Wilder. RSI is also popularly known as Relative Strength Index. FastTrack does not use that term to avoid confusion with FastTrack's Relative Strength, R Chart.
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RSI ParametersRSI has a single parameter. Wilder recommended 14 days as a parameter. Some books on the subject have suggested that a 22-day parameter may be more accurate. Martin Pring suggests a 9-day RSI for very short movements. When to use RSI?RSI is a good sensor of tops and bottoms. It can give signals before price direction changes. RSI major weakness is that signals may be too early . . . they are seldom late. Use RSI with trend lines to time issues that spurt and the stall, for example, technology mutual funds. |
Interpreting RSIThe chart of CPN uses a simple interpretation: This interpretation is appropriate for capturing return during a long-term trendless period. The Buy is quick from oversold levels. The Sell waits for the downtrend to resume. The RSI line was drawn with parameter set to 9, a relatively short value given the high volatility of this stock. The signals were hand entered based on visual interpretation. There was a 1-day trading delay in this chart which ensures that the trades could actually have been made as displayed. Note: There is no "one way" to interpret RSI. While it is used by itself in the discussion above, RSI is often used as a confirming indicator in combination with trend-following indicators. |