⌨️What is RSI?

(from O.Polunin's website, for beginners)
The Relative Strength Index (RSI), developed by J. Wells Wilder in 1978, is a technical analysis indicator that was created in the late 1970s to analyze the movement of stocks over a period of time. It is used as a momentum oscillator to measure the speed and magnitude of price movements. The RSI can be a useful tool depending on the trading style and strategy.
The RSI analyzes changes in the price of an asset over certain periods, for example, for 14 days on daily charts.
By dividing the average price increase by the average decrease, the RSI ranks the resulting data on a scale from 0 to 100.
This indicator allows you to assess the rate of price change and identify the activity of buyers or sellers in the market. When momentum increases and the price rises, there is active buying of the stock, while a decrease in momentum indicates an increase in selling pressure.
In addition, the RSI helps to identify signs of an oversold and overbought market, where values below 30 indicate oversold, and above 70 indicate overbought.
The standard RSI calculation includes 14 periods, but traders can change this number to change the sensitivity to price movements. For example, the 7-day RSI is more sensitive to changes than the 21-day RSI. Depending on the strategy, sometimes RSI levels are taken into account at levels below 20 and above 80 (instead of 30 and 70), which reduces the likelihood of false signals.
Traders use the RSI to identify oversold and overbought markets, as well as to predict trend changes through bullish and bearish divergences. A bullish divergence occurs when the RSI rises and the price falls, indicating a strengthening of purchasing power in a downtrend. Bearish, on the other hand, is observed when the RSI falls and the price rises, which indicates a loss of momentum. Still, RSI divergences should be used with caution, especially in highly volatile market conditions, and rely on the RSI as one of the conditions for technical analysis in an integrated approach.
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