One of the first indicators that most new traders get introduced to when discovering the world of Technical Analysis is RSI, or ‘The Relative Strength,’ index.
RSI is classified as ‘a momentum oscillator that measures speed and change of price movements.’
But what does that really mean?
To define this indicator, let’s first get a genesis behind its creation.
RSI was developed by engineer, mathematician, and trader J. Welles Wilder, presented in his ground-breaking work “New Concepts in Technical Trading Systems.”
At the time, Mr. Wilder was a stock and commodities trader that was met with the problem that can be paraphrased along the lines of: “Even though the trend is strong to the upside, how do I know price isn’t TOO expensive for a long position?” Or we can take the same type of statement to the opposite direction: “If the trend is strong to the downside, how do I know price isn’t TOO cheap?”
As traders, many of us have been there before. Take Gold for instance. This is a trend that’s taken place for the better part of 9 years, watching Gold go from less than $300 per ounce to current levels around the $1800 marker.