In our site, previously we talked about many oscillators including RSI or Relative Strength Index. The earlier discussion mainly covered the basic concept regarding RSI. Today we will go through the steps of advance trading using RSI along with Download link of Coloured RSI Amibroker Formula. It is one of the most widely used momentum oscillators in technical analysis.
A famous technical tools developer J. Welles Wilder introduced Relative Strength Index. It oscillates between the range of zero to hundred to identify the situation of an overbought and oversold trend in the market. There is another important point about RSI. It doesn’t only find out the overbought-oversold situation but also categorize bullish-bearish divergence. Don’t merge the concept of RSI with Relative Strength.
RSI(Relative Strength Index Formula)= 100 – 100 / (1 + RS)
Here, RSI indicates an average gain of up periods over a period of time/ an average loss of down period over a period of time.
How this RSI indicator works:
- As I have mentioned, the indicator is termed as a momentum oscillator, oscillates between 0 to 100. When RSI is above 70 level, considers as an overbought situation. Below level 30 is oversold. In the overbought situation, the powers of buyers touch the peak. After an overbought situation, the sellers are going to dominate the market. As a result, the market goes down. The reserve happens in the oversold situation.
- Divergence situation can also be identified with the help of RSI. There are two types of divergence, bullish and bearish. Simply divergence means a disagreement between actual price action and indicators. Here if we apply RSI, then when RSI makes higher low and price makes a lower low, bullish divergence appear. The reverse pattern happens in the bearish divergence.
Here is an example of bearish divergence.
I highlight the area of bearish divergence. The script is on BAJAJ AUTO Share price chart. A clear disagreement between price action and RSI is shown here. The disagreement indicates a clear reversal of the trend.
Download Coloured RSI Amibroker Formula
Now, let’s come to the main point, we’ve decided to give a gift to our viewers or customers, here a link of Colour Coded RSI Amibroker formula AFL is given below:
The image is given here for an example of color-coded RSI Amibroker Formula AFL. You can download the codes from the given link.