Relative Strength Indicator For New Zealand Stocks
The relative strength indictor, or RSI is a momentum indicator, which shows a stock price is either over brought or over sold. Its one of the technical indictors you should be using before buying or selling stock.
This was first published at Financefeast.
What Is A Relative Strength Indicator?
Investopedia explains this in simple terms as an indicator to show the magnitude of recent price changes. The price changes oscillate to being either over sold, ie investors selling off the asset, or over brought, ie investors buying the asset.
Its important to know this information because often a stock will sit in the over brought range before investors decide its time to “cash out” and start a sell. Buying at the peak isn’t bad, unless your in for short term gains. If that's the case then you’ll need to wait before selling up. While on its own, the RSI will not give you a complete picture, but together with other indicators, such as MACD or moving averages you should have a better opinion on where prices may go next.
Getting The Data
I suggest you follow my earlier guide on getting stock price data from Financefeast, also available on Medium.
How To Read An RSI Chart
In this example, the stock is clearly over brought. A lot buying has happened over a 1 week period, mainly due to media interest and smaller investors attempting to “cash in” on a rapid rise in price.
Is this a good buy?
Hard to say from a single piece of data, but if I combined this with a stochastic chart then I’d predict the price is at a peak and will most likely drop in the coming days or week. I would hold off further investment on this asset.
So as you can see, RSI charts definitely command a place in your arsenal and combined with other indicators enable you to make a call on price future movements.
Closing Thoughts
As you can see, RSI should be one of your “goto” indicators when researching a stock to purchase, or before selling.
You can access the complete Google Colab notebook here.
