RSI: Definition and Meaning

B

The correct answer is B. Relative strength index.

The relative strength index (RSI) is a technical indicator used in financial markets to measure the strength of a security's price action. It was developed by J. Welles Wilder Jr. and first introduced in his 1978 book, "New Concepts in Technical Trading Systems." The RSI is calculated using a mathematical formula that compares the average gains and losses of an asset over a specified period of time, typically 14 days.

The RSI oscillates between 0 and 100, and it is typically displayed as a line graph. Values above 70 are considered overbought, indicating that the asset may be due for a price correction. Conversely, values below 30 are considered oversold, indicating that the asset may be due for a price rebound.

Traders and investors use the RSI as a tool to help them identify potential buy or sell signals. For example, if the RSI for a stock has been hovering around 30 and then suddenly jumps to 70, this may be interpreted as a buy signal, indicating that the stock is starting to gain momentum. Conversely, if the RSI for a stock has been hovering around 70 and then suddenly drops to 30, this may be interpreted as a sell signal, indicating that the stock is starting to lose momentum.

Overall, the RSI is a popular technical indicator that can provide traders and investors with valuable insights into market trends and potential trading opportunities.