✔️ Information reviewed and updated in December 2023 by Eduardo López
Among the many existing tools available to traders, we can find the RSI indicator. Which represents one of the most used technical indicators due to its usefulness and ease of use, which makes it a valuable ally to invest in the market.
The RSI allows investors to identify momentum, market conditions, and warning signs of dangerous price movements. Today we want to share with you more about this important indicator and especially its Dynamic Zone.
➡What is the RSI indicator?
The RSI or the Relative Strength Index represents one of the most common indicators to be able to better work on technical analysis. This indicator is of the oscillator type and is responsible for reflecting the relative strength of those bullish movements compared to the bearish movements. Most traders implement it to be able to measure the strength of a trend in order to identify end-of-trend signals.
This indicator was originally developed by J. Welles Wilder in 1978. RSI has an incredible ability to provide valuable information regarding the market and trading signals. As we mentioned previously, this indicator is responsible for mediating the relationship between upward and downward movements, thus normalizing the calculation so that the index fluctuates in a range from 0 to 100.
➡What is the RSI Dynamic Zone?
The Dynamic Zone of the RSI is an oscillator that normally moves between the values 0 and 100, it is responsible for providing the overbought and oversold zones. Unlike the classic RSI, the limits of these zones (overbought and oversold) are not fixed, but are actually mobile, dynamic and can be adapted to the market situation.
➡How is it interpreted?
The RSI is above its upper limit, leaving the security in an overbought situation and a trend with significant probabilities of turning down. And if this indicator is below its lower limit, the heat may be in an oversold situation and the trend could have a significant probability of turning to the upside.
The buy signal is usually defined when the RSI Dynamic Zone crosses its lower band upwards, the sell signal is launched when the RSI Dynamic Zone crosses its upper band lower.
It is very easy to start trading by implementing the RSI indicatorFor a reason, it has become one of the most used indicators, so once you have understood how it works, you should implement it in your market strategies. In this way you can know if the market is overbought or oversold, know the best price to enter or exit a trade.
Remember that the RSI indicator can provide you with information on technical trends, as well as crucial signals for all your trading strategies.