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Technical  Analysis Categories

 - Types of Charts
      * Bar Charts
      * Line Charts
      * Candlestick Charts

 - Chart Reading
      * Trendlines
      *  Resistance Levels
      *  Support Levels

 - Moving Average
     * Simple Moving Average
      * Weighted Moving Average
      * Exponential Moving Average
      * Triangular Moving Average

 - Momentum Indicators &
    Oscillators
 - Rate of Change
 - Relative Strength Index
 - Moving Averages
    Convergence /  Divergences
 - Price Oscillator
 - Stochastic
 - Money Flow Index
 - Williams %R
 - Volume + Moving Average

 - Stock Chart Overlays:
 - Bollinger Bands
 - Parabolic SAR

 - Stock Chart Patterns:
     * Head and Shoulders
     * V Formations
     * Double Tops and Bottoms
     * Triple Tops and Bottoms
     * Saucers - Rounded Tops and
         Bottoms
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         Symmetrical Triangles
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     * Spikes
     * One-Day Reversals
     * Island Reversal

 - Dow Theory

 - Elliot Wave Theory

 - Spinella Heart Rate Theory

 - Fibonacci

 


Relative Strength Index ("RSI")

RSI is a momentum indicator that measures a stock’s strengths and weakness, in terms of a comparison of up-days versus down-days. When charted, the vertical scale ranges from 0 to 100, while the horizontal scale represents the time line. The RSI oscillator measures the "internal" momentum in a stock, against itself.

RSI is used to identify tops and bottoms. The consensus is that when the trendline approaches the 70 to 80 level, the stock is in an overbought condition. Conversely, when the trendline approaches the 20 to 30 mark, it is considered oversold. Normally, when a security is in the overbought range, one should avoid buying new long positions. Conversely, when a stock is in an oversold condition, one should avoid purchasing new short positions. Technically, you should follow and trade with a trend, until the trend reverses and a new signal is generated. These are guidelines, not absolute rules.

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RSI is a confirming trendline that also produces buy and sell signals. The RSI oscillator needs to be analyzed with other statistics, such as moving averages and the actual stock price. It’s useful in confirming other trends, as well as generating its own buy and sell signals. Using a declining and then rebounding stock as an example, presume that a stock declines and its RSI reading drops into the 20 to 30 range. As the stock price subsequently rebounds and the RSI approaches the 50 level, it indicates a buying opportunity and generates a buy signal. A good example of a RSI buy signal is reflected in the LSI Logic Diagram above, from February 2003 to September 2003. For those who never heard of LSI Logic, it’s a midsize semiconductor and storage company with excellent prospects.

RSI identifies divergencies. RSI is also used to identify divergencies of the actual stock prices or moving averages versus the RSI, which would signal an upcoming reversal.

RSI verifies trends, chart patterns, support and resistance levels. RSI is used to verify the upward or downward direction of a stock’s trend. RSI also helps in identifying a company’s support and resistance levels, as well as when a company breaks through those levels (breakouts and penetrations). Additionally, RSI forms chart patterns that are then analyzed.

RSI uses short time periods. In terms of the time period used, most traders use the 7, 9 and 14 day periods, as well as 21 or 25-day periods. Each trader has his or her own strategy. The shorter the time period, the more volatile the index. Big swings in stock prices can distort the results and give misleading trading signals.

The RSI formula is as follows:

RSI = 100 – [100 / (1 + RS)]
RS = (A/B)
Where:

A = Average of N-days that closed up
B = Average of N-Days that closed down

N= Number of days in the period

The theory is that the RSI will identify the top or bottom of a stock trend, then start the reversal process, before the actual stock prices reverse their trend. Thus, RSI has some of the characteristics of leading indicators. It is also used to identify divergencies among other indicators and prices, as well as to earmark stocks that are oversold or overbought. Additionally, it can agree with other indicators on a stock’s resistance and support prices.

Click below for more information on oscillators:

Rate of Change
MACD
Price Oscillator
Stochastic
Money Flow Index
Williams %R
Volume + Moving Average

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