WEBVTT 00:01.130 --> 00:03.910 Hi everyone welcome back to the technical analysis training course. 00:03.940 --> 00:08.090 Today we're going to be talking about the relative strength index. 00:08.350 --> 00:11.950 So let's get right to the relative strength index or the RSI. 00:11.950 --> 00:15.540 The RSI is calculated in the following manner. 00:15.700 --> 00:27.660 Our site equals a 100 minus 100 divided by 1 plus R S and R S is the average gain in n period. 00:27.670 --> 00:35.290 So if we're talking about days that our US is the average gain in days minus the average loss and that 00:35.290 --> 00:41.760 same number of days usually the RSI is calculated on a 14 day period. 00:41.890 --> 00:49.240 You can change this time frame but that is the standard in that we're talking about RSI provides buy 00:49.240 --> 00:55.040 and sell signals when a stock reaches an overbought or oversold condition. 00:55.240 --> 01:00.380 RSI is an oscillator meaning it moves between zero and 100. 01:00.580 --> 01:03.330 And we use it as a trend reversal indicator. 01:04.320 --> 01:11.970 It's best to use RSI with other indicators such as support and resistance because you'll often find 01:12.450 --> 01:17.970 overbought or oversold conditions around support or resistance. 01:17.970 --> 01:26.910 So when RSI rises over 70 we're going to look to sell the stock or at a minimum where a look to tighten 01:26.910 --> 01:33.100 our stops and be ready for the stock to turn down when the RSI is under 30. 01:33.140 --> 01:38.990 We're going to look to buy the stock as the stock is in an oversold condition at that point. 01:39.020 --> 01:45.270 Some traders like to use 80 and 20 as opposed to the 70 and 30 level with RSI. 01:45.290 --> 01:52.730 So if you're a more conservative trader you're going to look to sell a stock or Again tighten your stops 01:53.600 --> 02:02.640 when RSI reaches the 80 level and you're on a look to buy the stock when RSI dives under 20. 02:03.020 --> 02:06.460 We're also going to look for divergences just like we did with the Mac. 02:06.620 --> 02:09.800 So look for both positive and negative divergences. 02:09.800 --> 02:17.890 If the RSI is moving down and the stock is continuing to move up we have a negative divergence and if 02:17.900 --> 02:24.110 RSI is moving up and the stock is moving down then we have a positive divergence. 02:24.110 --> 02:27.290 Let's look at RSI on a chart and see how we would use it in our trading. 02:27.680 --> 02:31.550 Let's use a chart of Tesla to look at the relative strength index. 02:31.550 --> 02:38.700 So here we have Tesla TSL LA which is typed in the upper left portion of our trading view screen. 02:39.430 --> 02:47.320 We're looking at a daily chart and we're going to go to indicators and type in RSI. 02:47.550 --> 02:56.270 We see the relative strength index places the relative strength index at the bottom of the screen and 02:56.310 --> 03:07.430 we can see in mid-June that the RSI gave us an overbought indicator This line represents the 70 level. 03:07.430 --> 03:14.010 The RSI went through 70 and actually went up to around the 78 level. 03:14.240 --> 03:20.240 So this was giving us a sell indicator and we would either sell or tighten our stops if we are long 03:20.270 --> 03:23.510 the stock at this point which had been in an uptrend 03:30.670 --> 03:38.250 and we see the stock after the RSI gave us the sell indicator sold off the stock had been trading. 03:38.440 --> 03:49.250 It went to a high here of 373 73 and then the sell off and went down to a low of 286 13. 03:49.300 --> 03:58.750 So that was a nice move down in the stock with a cell signal provided by the RSI the stock bounced. 03:58.840 --> 04:05.240 Now we've got another cell signal on the RSI here. 04:05.460 --> 04:13.820 When it touch 70 this strong move up in the stock the RSI was telling you that the stock was over ball 04:13.940 --> 04:14.940 at this point. 04:15.200 --> 04:20.390 And again we would either sell our position or tighten our stop at this point. 04:21.050 --> 04:29.060 The stock trended down and we actually get a buy signal in early September. 04:29.190 --> 04:35.910 Here we are cycads is a buy signal as it drops through the 30 level telling us the stock is oversold 04:35.910 --> 04:45.950 at this point and we get a nice rally in the stock from around 260 up to around the 315 level. 04:45.980 --> 04:49.180 So that's the RSI with Tesla. 04:49.340 --> 04:52.390 But let's zoom out a little bit. 04:53.950 --> 05:03.220 And what we'll see is that the RSI if we draw in a couple of trend lines we have support here 05:07.080 --> 05:11.080 around this level we have resistance here 05:15.790 --> 05:23.000 which the stock didn't move through but then came right back through within a day or two. 05:23.040 --> 05:25.080 In each case. 05:25.220 --> 05:32.220 So if we'd used resistance and support along with our RSI indicator that would have given us more confidence 05:32.220 --> 05:35.310 that the trades were correct at this point. 05:35.370 --> 05:41.580 RSI is the oscillator that is best use if you can use with a support and resistance level. 05:41.730 --> 05:48.700 So that's RSI combined with support and resistance and the stock of Tesla. 05:48.740 --> 05:53.780 I'd like to thank you for watching this video on the relative strength index and our next video we're 05:53.780 --> 06:00.690 going to be talking about a couple of reversal indicators a double top and a double bottom. 06:00.770 --> 06:02.440 I look forward to seeing you in the next video.