RSI (Relative Strength Index)
One of the technical indicators you can use to build out your trading strategy on Ayrro is RSI. You may have noticed this option when constructing your algorithm’s entry and exit conditions. What is the RSI, and what does it mean?
What is RSI?
The Relative Strength Index is a number ranging between 0 and 100 that indicates the momentum of a stock. A stock’s price can either move up or down, but when the price is consistently moving in one direction over a period of time, we say that stock has momentum. Values above 50 mean the stock has recently been moving up, and values below 50 mean the trend is downward.
Understanding Time Periods
In order to calculate the RSI for a stock, you’ll need to define two things: 1) How many time periods to include in the calculation, and 2) What defines a time period? (e.g. minute, hour, day, month). For instance, you may wish to know the 36-Day RSI for Tesla. This means you’ll look at Tesla’s closing prices for the past 36 days and put them into the RSI formula. Generally speaking, day traders are more interested in the short-term momentum of stocks and so they’ll use smaller time frames. Ayrro uses the 14-minute time frame to calculate the RSI value of a stock/cryptocurrency.
What Does the RSI Value mean?
RSI is a bounded value between 0 and 100, and will never be lower than 0 nor higher than 100. Generally speaking, investors acknowledge values of 70 or above as “overbought”, meaning a large number of buyers have recently been pushing stocks prices significantly higher. Values of 30 or lower are generally considered “oversold” meaning a large number of sellers have been driving the price downward. Since price trends don’t last forever, it can be smart to capitalize on recent selloffs. One strategy investors use is to buy when the RSI is less than 30 and sell when the RSI is greater than 70.
RSI is just one of the many technical indicators you can use to assist you in building a profitable algorithm. Try it out today and backtest it across different stocks and cryptocurrencies. Find out what works best for you!