Matt or Steve (or anyone else in the trading community),
I purchased SDS late April @ $15.10 per share. RSI at the
time was around 45. Stock closed today @ $17.31 with an RSI
of 74.96. My understanding is that when the RSI moves above
70 its an indication the stock is becoming overbought.
If that's true, how does that happen when the underlying security
only rises 14.6% from the bottom. Is
that because its a relative indicator and most equities
are tanking? Is this really an indication that SDS is now
overbought? Or does that only mean "overbought" relative to
other equities?
Posted by James_Roe on 17th of May 2012 at 06:16 pm
"The
Relative Strength Index (
RSI) is a
technical
indicator used in the analysis of
financial
markets. It is intended to chart the current and historical
strength or weakness of a stock or market based on the closing
prices of a recent trading period. The indicator should not be
confused with
relative
strength.
The RSI is classified as a momentum
oscillator, measuring the velocity and magnitude of directional
price movements.
Momentum is the rate of the rise or fall in price. The RSI
computes momentum as the ratio of higher closes to lower closes:
stocks which have had more or stronger positive changes have a
higher RSI than stocks which have had more or stronger negative
changes."
So what that loosely means is that the momentum or change in
slope of the price at the moment is reaching statistically
significant outlier points. It suggests that the change in price of
the stock is too sudden to be sustainable. You can see this in the
price change as the stock has moved by nearly 13% in several
weeks.
It sounds to me like you are trying to rationalize holding on to it
in the hopes of more profit why not just go ahead and take some now
as 13% is nothing to sneeze at, and that way you won't be kicking
yourself if it reverses.
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RSI
Posted by RichieD on 17th of May 2012 at 05:54 pm
Matt or Steve (or anyone else in the trading community),
I purchased SDS late April @ $15.10 per share. RSI at the time was around 45. Stock closed today @ $17.31 with an RSI of 74.96. My understanding is that when the RSI moves above 70 its an indication the stock is becoming overbought. If that's true, how does that happen when the underlying security only rises 14.6% from the bottom. Is that because its a relative indicator and most equities are tanking? Is this really an indication that SDS is now overbought? Or does that only mean "overbought" relative to other equities?
From Wikipedia
Posted by James_Roe on 17th of May 2012 at 06:16 pm
"The Relative Strength Index ( RSI) is a technical indicator used in the analysis of financial markets. It is intended to chart the current and historical strength or weakness of a stock or market based on the closing prices of a recent trading period. The indicator should not be confused with relative strength.
The RSI is classified as a momentum oscillator, measuring the velocity and magnitude of directional price movements. Momentum is the rate of the rise or fall in price. The RSI computes momentum as the ratio of higher closes to lower closes: stocks which have had more or stronger positive changes have a higher RSI than stocks which have had more or stronger negative changes."
So what that loosely means is that the momentum or change in slope of the price at the moment is reaching statistically significant outlier points. It suggests that the change in price of the stock is too sudden to be sustainable. You can see this in the price change as the stock has moved by nearly 13% in several weeks.
It sounds to me like you are trying to rationalize holding on to it in the hopes of more profit why not just go ahead and take some now as 13% is nothing to sneeze at, and that way you won't be kicking yourself if it reverses.