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We take a look at RSI 50 crossing, long-term trend indication when the RSI is above or below 50, and also RSI 50 uniform activity support and rejection in determining the odds of improved new highs after a pullback or fresh lows after a recovery bounce back move.
We look at individual stock charts and also look at some world market indices going as far back as the 1980's in one chart example with impressive conclusions that what we are studying here has been back-tested thoroughly and is worth our contemplation, consideration and implementation.
RSI formula
100
RSI = 100 - --------
1 + RS
RS = Average Gain / Average Loss
In this Relative Strength Index - RSI - lesson we look at how the mathematics of the RSI 'force'
instruments to stage huge price swings as they move above or below the RSI 50 level. This is observed in all chart time frames (minute, hourly, daily, weekly and monthly) and in any and all trading instruments worldwide.
What you will learn in this video is quite frankly not known by many traders (both amateur and professional) and it will help explain why markets or individual stocks suddenly stage huge moves.
Here is the RSI formula;
RSI = 100 - [100 / (1+RS*)]
- RS = Average Gain / Average Loss
Because the RSI is essentially a measure of AVERAGE GAIN versus AVERAGE LOSS over the most recent period of time (usually 14 periods or bars - which translates to say the most recent 14 minutes, or the most recent 14 hours, or the most recent 14 days, or the most recent 14 weeks, or the most recent 14 months) it is a mathematical fact that if a stock is trading below 50 then the only way it can move the RSI above 50 is by introducing a large positive number into the mix. It is also a mathematical fact that if a stocks is trading above 50 then the only way it can move the RSI below 50 is by introducing a large negative number into the mix.
The only way to move the RSI above 50 is by introducing a large gain into the mix (so that the average gain can outweigh the average loss).
The only way to move the RSI below 50 is by introducing a large loss into the mix (so the average gain can outweigh the average loss).
Understanding this can help traders make informed decisions because for example one should not be surprised to see big market or stock swings when instruments are trading near the 50 RSI level - especially on daily or weekly time frames.
The Relative Strength Index was developed by J. Welles Wilder and he is the one who recommended the use of the 14 bar setting - which is way it is the default in most chart settings even though you can use any bar setting. Personally for hourly chart settings I prefer to use a 26 bar setting because it gives a smooth RSI reading and gets rid of excessive hour to hour volatility.
I also have to add that even though Wilder recommended the use of the 14 bar setting I believe that 13 is actually the correct setting because 14 is not a strong number in numerology as compared to 13 [ for example we have 7 days and 6 nights of creation which adds up to 13, the number 13 represents femininity because it corresponds to the number of lunar (menstrual) cycles in a year (13 x 28 = 364 days) and also humans undergo a massive chemical, physiological and consciousness change near the age of 13 ].
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For more take a look at the following playlists:
✅ RSI 50 Crossing
https://www.youtube.com/playlist?list=PLjHhEQ5LDpkYNkVual4lILwNXBErtiidg
✅ RSI 50 Uniform Rejection + Support
https://www.youtube.com/playlist?list=PLjHhEQ5LDpkZy6WqgZkBGhDt-LzoRDvYT