Over the years numerous technical indicators have been developed to describe the stock performance, or, hopefully to predict future price movements. In this section we introduce five of the most useful indicators, provide examples, and explain how they are calculated.

RSI

Figure 6. RSI

RSI stands for Relative Strength Indicator. In order to compute the p-period RSI, one first computes the p one-period changes.

Then one computes the average of the up changes U and down changes D:

Then

RSI = 100% x U/(U+D)

We can see that, if the price goes up in every single period, RSI is 100%. If the price goes down in every period, RSI=0.

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