Relative Strength Index

Relative Strength Index, or RSI, is a tool used to measure current price strength in relation to previous prices. Investopedia.com insists that this tool helps determine an overbought, or oversold position, as well as serving as warning signals of potential price reversals, helping an investor to formulate buy and sell signals of a stock. There are two important numbers in relation to RSI: 30 and 70. The number 30 serves as a buy signal; when the RSI crosses below this number, an investor must consider buying because the stock has been oversold. The number 70 serves as a sell signal; when the RSI crosses above this number an investor must consider selling because the stock has been overbought.