Relative Strength Index

The Relative Strength Index is an overbought/oversold indicator plotted on a vertical scale from 0 to 100. Developed by J. Welles Wilder, the RSI originally employed a fourteen-period calculation. Wilder considered RSI values under 30 as oversold conditions, and RSI values over 70 as overbought conditions. Now, five-to fourteen-period calculations are commonly applied, depending on the market, and 80 and 20 are often used to delineate overbought and oversold conditions, respectively.

Formula:

You change the number of periods used to calculate the RSI in the RSI Parameters menu. A low number of periods yields frequent buy and sell signals. A high number of periods yields fewer buy and sell signals.

Parameters

Parameter

Function

Color

Default color is yellow. To change the color, click on the color button:

Then choose the color you want from the Color Menu.

Graph

Sets the drawing method for the study.

Option	Function
Bars	Renders the study as bars.
Dots	Renders the study as dots.
Dotted	Renders the study as dots.
Histogram	Renders the study as a histogram drawn from 0.
Line (Default)	Renders the study as a line.
Not Drawn	The study is not rendered.

Line Style

Sets the rendering technique of the graph parameter (if it is set to Line).

Option	Function
Dash-Dot	--l-l-l-l-l-l-
Dash-Dot-Dot	----ll----ll----
Dashed	- - - - - - - - - - - - - - -
Dotted	llllllllll
Solid (Default)	-------------------------

Line Width

Sets the tickness of the study line.

Option	Function
1 pixel (Default)
2 pixels
3 pixels
4 pixels
5 pixels

Period

Price

The price on which the study is calculated:

Option	Function
Close	Closing price (Default).
First Study	Calculates the study using the values of the first study in the window.
H, L Midpt	Calculates the study on the mid-point of the high and low.
H, L, C Avg.	Calculates the study on the average of the High, Low, and Close.
High	High price.
Low	Low price.
Open	Opening price.
Tick Average	Calculates the study on the average of ticks in the period.

Notes

Developed by J. Welles Wilder, the Relative Strength Index (RSI) remains a popular, much-used momentum oscillator. The RSI compares gains to losses to calculate a value between 0 to 100. Wilder recommended using a 14 period RSI based on the close, but the number of periods and operative price parameters are adjustable in Aspen.

RSI is a banded oscillator. Wilder also recommended using 70 and 30 and overbought and oversold levels, respectively. As the RSI falls below 30, overbought conditions exist. Rising from below 30 to above 30 is considered bullish. Conversely, as the RSI rises above 70, overbought conditions exist, and falling back below 70 is considered bearish.

Buy and sell signals can also be generated by divergence.

The centerline for RSI is 50. Generally, a reading above 50 indicates dominant buying, below 50 dominant selling.

see, J. Welles Wilder Jr., New Concepts in Technical Trading Systems, McLeansville, NC: Trend Research, 1978, pp. 63-70.