The Relative Strength Index is a technical indicator of asset momentum derived by making comparisons between the size of an asset’s recent gains and its recent losses. The purpose of this is to determine the conditions in which an asset has been oversold or overbought. The index charts values from 0 – 100. When an asset gets close to the 70 mark it is thought to be overbought. This indicates that it is probably being overvalued and could be due for a pullback. If it is closer to the 30 mark then this is an indication that the asset in question may be being oversold and so may possibly become undervalued, making at ripe for a hike in purchasing activity and a subsequent rise in worth. A particular weakness of the Relative Strength Index is that wild surges and drops in market prices can cause it to reveal spurious buy or sell signals.
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