Syndicate
The Use of Oscillators
Oscillators are indexes that oscillate around a determined band of possible securities. Many are the oscillators that are used in the technical analysis the following is possibly the most important relative strength index that has the most power of prediction among all the others.
The Relative Strength Index (RSI) Oscillator - This oscillator, also denominated as the welled wilder in memory of its promoter is a relative strength index.
The RSI has a high power of prediction, because it detects when a share is over-valued (over-bought). And because of it, it is used for obtaining signs of purchases or sales. Its calculation requires of the use of data of about 10 to 15 sessions. From this sessions we want to know the increasing and decreasing of prices during the sessions, in relation to those prices that are in its way out.
Once you have this information, you average the increases in the sessions, in which there has been a closing price higher than the prices going on their way out, and of the decreases in the sessions in which there has been a closing price lower than the opening or the prices going on their way out, which would be the closing of the previous session.
To calculate it, you apply the following formula:
RSI = 100 - 100
1 + PS
BB
Where:
PS = average of the increase in the closing prices in relation to the previous session.
PB = leverage of the descent of closing prices.
To analyze the RSI you have to take into account that when the value is on top of 60 (or of 70), it indicates that the security is over-bought, and when it is under 40 (or 30) the security is over sold.