RSI stands for Relative Strength Index, which is a technical analysis indicator used to measure the strength of an asset's price action. The RSI indicator was developed by J. Welles Wilder Jr. and was introduced in his 1978 book, "New Concepts in Technical Trading Systems."
The RSI indicator is calculated by comparing the average gains and losses of an asset over a specified period of time. The formula for calculating RSI is:
RSI = 100 - [100 / (1 + RS)] where RS = Average gain / Average loss
The RSI value ranges from 0 to 100, with values above 70 indicating that the asset is overbought and values below 30 indicating that the asset is oversold. Overbought and oversold conditions can be used to identify potential trend reversals or corrections in the price of an asset.
The RSI indicator is also used to identify divergences between the price of an asset and its RSI value. A bullish divergence occurs when the price of an asset is making lower lows, but the RSI indicator is making higher lows. This can be a sign that a bullish reversal may occur. A bearish divergence occurs when the price of an asset is making higher highs, but the RSI indicator is making lower highs. This can be a sign that a bearish reversal may occur.
Overall, the RSI indicator is a widely used technical analysis tool that can be useful for identifying potential trend reversals, as well as overbought and oversold conditions in the price of an asset.