Technical Analysis: RSI and Stochastic Oscillator

1) Relative Strength Index: This indicator measures the internal strength of the share and is calculated by comparing the average upward price change with average downward price over a set period of time.

For e.g a 14 day RSI would consider the average upward and downward movements of the equity over 14 days.

RSI = 100 - 100/ (1 + U/D)

U = Average upward change.

D = Average downward change.

RSI has reference lines at 30 and 70.

When RSI crosses 30, it is suggested to BUY

When RSI moves below 70, it is suggested to SELL

2) Stochastic Oscillator: This is an indicator that uses previous support and resistance levels. It indicates the stock price levels in relation to its historic price momentum.

%K = (C- Ln)/(Hn-Ln) *100

C = Present Close price

Ln = Lowest low for last "n" period.

Hn = Highest high for last "n" period.

n = Defined period.

When %K crosses 20, it is suggested to BUY

When %K falls below 80, it is suggested to SELL

Priyanka S Vaidya