Strength - it’s all relative

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Hello, boys and girls welcome back to the classroom. It’s a pleasure to deliver this weekly lesson to you today. Today we are gonna take a look at the RSI. what it does, how to use it, its limitations, the whole shebang. Lets fuckingg go..

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So what is the relative strength index (RSI)? Simply, it is a measure of how overbought (or oversold) stock is at a certain point. Now, there is a whole bunch of math behind it, but you really don’t need to give the slightest shit about the complexities behind it as the RSI will be calculated for you through any standard charting service. However, for all you nerds out there (like me) here’s a page that goes into the calculations.

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The RSI measures recent price changes as it moves between 0 and 100. The RSI provides short-term buy and sell signals. Typical interpretation is that any stock with a current RSI of less than 30 is "oversold." Any value above 70 means the shares are "overbought.” IMPORTANT.

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If you are asking yourself. “This sounds quite similar to technical analysis”. You would be correct. I’m not the biggest technical anal-ass-is fan. A lot of scribbles and dumb-asses on YouTube thinking they see signs like an astrology girl. Still, there are a few cases of where the basics can help you massively.

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Now for the way to use your new tool RS. If you're thinking about selling a stock you own, an RSI of 70 suggests it may be a good time to sell (overbought). If the RSI is 30, it might be better to hold on (oversold), as the shares are likely to rise.

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Here’s an example I found using BP’s closing share prices from January to May of 2011 to better explain it.

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It’s not your golden ticket to riches

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Like most of the tips we give you. This isn’t going to make you pick a winning stock every time on its own. Similar to most technical indicators it shouldn’t ever be relied upon exclusively. Since the indicator shows momentum, it can remain in the overbought or oversold zone for a long time when an asset has strong momentum in either direction. So just because the RSI of your chosen stock is 30 doesn’t mean it’s destined to skyrocket at any given moment.

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Nevertheless, it can often provide insights into the next direction of the share price with greater accuracy than almost all other signals. The RSI thrives in a ranging market (a market where the prices move back and forth between a range of a high price level and a low-price level), rather than a trending market (where the stock is overbought but the price continues to rise as people want to get in on the trend).

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That’s all Folks

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Alright, there it is. A quick class on how to use the relative strength index (RSI). It’s a nice handy tool I like to use when doing my due diligence on a stock, that’s really easy to pull up and find. Have a nice day winner!

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Not financial advice, Full disclaimer here

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