A Guide To Technical Indicators
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 Relative Strength Index (RSI)
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The Relative Strength Index, sometimes called RSI, is a momentum oscillator that
is plotted on a vertical scale from 0 to 100. It is calculated by dividing the x-bar
up close average from the 14-bar down close average. Up closes and down closes refer
to the absolute change in price from the close of the current bar from the close
of the previous bar.
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Interpretation:
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Bullish:When RSI is greater than 50, upward volatility
is stronger than downward volatility and it is a signal of potential market strength
and potential buying activity.
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Bearish:When RSI is less than 50, downward volatility is stronger than upward volatility
and it is a signal of potential market weakness and potential selling activity.
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Bullish: When RSI is below 30 or 20 - two commonly-used reference levels - it is
an indication the market is potentially oversold and is a signal of potential market
strength and potential buying activity.
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Bearish: When RSI is above 70 or 80 - two commonly-used reference levels - it is
an indication the market is potentially overbought and is a signal of potential
market weakness and potential selling activity.
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Trend lines
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A trend line is a straight line on a chart that connects consecutive tops or consecutive
bottoms of prices and is utilized to identify levels of support and resistance
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Interpretation:
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Bullish:When the closing price is above a trend line,
it is a signal of potential market strength and potential buying activity
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Bearish:When the closing price is below a trend line,
it is a signal of potential market weakness and potential selling activity.
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Bullish:When the low of the bar is below the trend line but the close is above the
trend line, it may indicate a false breakout and be a signal of potential market
strength and potential buying activity.
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Bearish:When the high of the bar is above the trend line but the close is below
the trend line, it may indicate a false breakout and be a signal of potential market
weakness and potential selling activity
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Directional Movement Index(DMI)
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The Directional Movement Indicator, sometimes called DMI, plots a positive line
(+DI) measuring buying pressure and a negative line (-DI) measuring selling pressure.
The formula utilizes the past 14 bars. The Average Directional Movement (ADX) line
measures the degree of trend in the market and is based on the difference between
the +DI and -DI lines
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Interpretation:
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Bullish: When the +DI line is greater than the -DI
line, it is a signal of potential market strength and potential buying activity.
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Bearish: When the -DI line is greater than the +DI
line, it is a signal of potential market weakness and potential selling activity.
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