The Relative Strength Index by J. Welles Wilder, Jr.
The Relative Strength Index (RSI) is a tool which can add a new dimension to chart interpretation
when plotted in conjunction with a daily bar chart. Some of these interpretative factors are:
Tops and bottoms are indicated when the RSI goes above 70 or drops below 30;
Chart formations which often show up graphically on the RSI may not be apparent on the bar chart;
Failure swings above 70 or below 30 on the RSI scale are strong indications of market reversals;
Support and resistance often show up clearly on the RSI before becoming apparent on the bar chart;
Divergence between the RSI and price action on the chart is a very strong indication that a market turning
point is imminent.
Before taking up the equation for calculating the Relative Strength Index, let's examine briefly the
momentum concept upon which the RSI is based.