RSI is a technical metric based on recent historical performance that measures momentum and can help identify if a security is overbought or oversold.
There are 2 steps to calculate RSI. First we must calculate the Relative Strength of a security using historical performance.
Given N days,
Relative Strength = (Avg. of N day's Closes Up) / (Avg. of N day's Closes Down)
Then, we normalize the Relative Strength:
RSI = 100 - (100 / 1 + Relative Strength)
Convention states that when a stock has an
RSI < 30 it is considered oversold; alternatively, a
RSI > 70 is generally considered overbought.