Introduction to the RSI

The video discusses how to use the RSI, or relative strength index, to improve trading results.  The RSI was developed in 1978 to measure if a stock is overbought or oversold.  It measures the magnitude of a pairs recent gains compared to its recent losses.  This analysis is converted into a number which oscillates between 0 and 100. 

The most common time period used for time analysis is 14 periods.  This speaker believes that an overbought reading occurs between 70 and 80 while an oversold reading occurs between 20 and 30. 

The main strategy used to trade this indicator is to wait for a move above or below an overbought or oversold level and then to wait for it to cross back below or above the midpoint (50).  This could signal a change in trend. 

He also looks for RSI divergence, which occurs when price is moving in the opposite direction from the RSI.  This is key in discovering changes in trend.