The relative strength indicator, which we will refer to as RSI, is quite different from the previous indicators we saw that were based on moving averages of prices. This is based on price changes over periods to capture the strength/magnitude of price moves.

The relative strength indicator was developed by J Welles Wilder. It comprises a lookback period, which it uses to compute the magnitude of the average of gains/price increases over that period, as well as the magnitude of the averages of losses/price decreases over that period. Then, it computes the RSI value that normalizes the signal value to stay between 0 and 100, and attempts to capture if there have been many more gains relative to the losses, or if there have been many more losses relative to the gains. RSI values over 50% indicate an uptrend, while RSI values below 50% indicate a downtrend.

For the last n periods, the following applies:

Otherwise, the following applies:

Otherwise, the following applies: