The strength index was first used in futures trading. Later, in many chart technical analysis, it was found that the theory and practice of intensity index were extremely suitable for short-term investment in the stock market, so it was used to measure and analyze the stock price rise and fall. Foreign exchange trading is similar to futures trading and stock trading in that the rise and fall of exchange rate ultimately depends on the relationship between supply and demand. Therefore, the strength index is also widely used to analyze the foreign exchange market. Later, investors also made the calculation formula of RSI into a computer program, and the operator can get the value of RSI by inputting the exchange rate data into the computer every day. At present, both the chart analysis of Reuters and the chart analysis of Deli Finance can extract the trend chart of RSI.
[Edit this paragraph] Principles for application of ]RSI indicators
(1) Limited by the calculation formula, the value of the strength index is between 0 and 100 no matter how the price changes.
(2) An intensity index higher than 50 indicates that the market is strong, while an intensity index lower than 50 indicates that the market is weak.
(3) The strength index fluctuates between 70 and 30. When the six-day index rises to 80, it means that the stock market has been overbought. If it continues to rise and exceeds 90, it means that it has reached the warning zone of serious overbought, and the stock price has formed a head, which is likely to reverse in the short term.
(4) When the six-day strength index falls to 20, it means that the stock market is oversold. If it continues to fall below 10, it means that it has reached a serious oversold area, and the stock price is likely to stop falling and rebound.
(5) The oversold and overbought value of each type of stock is different.
In a bull market, blue chips are usually overbought when the intensity index is 80, oversold at 30, oversold when the intensity index is 85-90 and oversold at 20-25. However, we can't judge whether blue-chip stocks or second-and third-tier stocks are overbought or oversold according to the above values, mainly because some stocks have their own overbought/oversold level, that is, the stock price is reversed. Generally, the overbought value is higher (90-95), and the value regarded as oversold is lower (10- 15). As for those stocks with stable performance, the overbought value is low (65-70) and the oversold value is high (35-40). Therefore, before we buy/sell stocks, we must
(6) The determination of overbought and oversold range also depends on two factors. The first is the characteristics of the market. Generally speaking, a stable market with little fluctuation can be defined as overbought above 70 and oversold below 30. A sharply changing market can be defined as overbought above 80 and oversold below 20. The second is the time parameter taken when calculating RSI. For example, RSI on the 9th can be defined as overbought over 80 and oversold under 20. It can be stipulated that more than 70 are overbought and less than 30 are overbought. It should be noted that overbought or oversold itself does not constitute an entry signal. Sometimes the market changes too fast, and RSI will soon go beyond the normal range. At this point, the overbought or oversold RSI often loses its function as an early warning signal for entering and leaving the market. For example, in the early days of bull market, RSI often quickly entered the area above 80 and stayed in this area for a long time. But this does not mean that the rising market will end. Instead, it is a strong performance. Only in a bull market or a bear market, overbought is a reliable entry signal. For this reason, generally speaking, once RSI enters the abnormal area, it is not appropriate to take trading actions. It is best to trade when the price itself signals a turning point. This can avoid the "trap" as mentioned above, when RSI enters the overbought area but does not return to the normal area immediately. In many cases, a good trading signal is that RSI enters the overbought and oversold area, and then crosses the overbought or oversold line and returns to the normal area. However, price confirmation is still needed here. ② Breakthrough of moving average; ③ Completion of a certain price type.
(7) When comparing the strength index with the stock price or index, it often shows the future market trend first, that is, the strength index rises first when the stock price or index does not rise, and the strength index falls first when the stock price or index does not fall. Its characteristics are most obvious at the peak and bottom of the stock price.
(8) When the strength index goes up and the stock price goes down, or the strength index goes down and the stock price goes up, this situation is called "backswing". When RSI is above 70 to 80, the price is broken but RSI can't, forming a "top backswing", while when RSI is below 30 to 20, the price is broken but RSI can't, forming a "bottom backswing".