RSI stands for Relative Strength Index. It was developed by the J. Welles Wilder in 1978 to be used in the financial stock markets. This index reacts to the price changes quickly and it is used to display when a stock is overbought and when it is oversold.
It’s value ranges from 0 to 100. Values over 70 indicate that the coin is overbought. Values below 30 mean that the coin is oversold.
RSI(X) function has only one parameter – X, which is the number of ticks to go back. Calculation of RSI consists of four steps:
- Find the sum of all gains for the last X ticks and divide it by X to find average gain
- Find the sum of all losses for the last X ticks and divide it by X to find average loss
- Find relative strength: (average gain) / (average loss)
- Finally the RSI formula is: 100 – 100 / (1 + Relative Strength)
StockCharts.com - Deeper dive into RSI