If you are not interested in the calculation of this indicator and would like to get to the interpretations of the Relative Strength Indicator, move on to the next page - Overextended Currencies.

To Calculate RSI:

• The number of days that a currency is up is compared to the number of days that the currency is down in a given time period.
• The numerator in the basic formula is an average of all the sessions that finished with an upward price change.
  
• The denominator is an average of all the down closes for that period.
  
• The average for the down days are calculated as absolute numbers.
• The Initial RS is then turned into an oscillator.
  

Basic Formula:

n = number of RSI periods

a. Initial RS = (Add All Up Closes/n)
(Add All Down Closes/n)

b. RSI = 1 - 100
(1+RS)

The above formula is the basic formula, but in order to account for all past data (to form an exponentially weighted average) one needs to smooth the RS.

Smoothed Formula:

To smooth the RS, once an initial RS is computed, the RS equation above changes to:

(using n = 14, as recommended by Wilder)

[(Initial RS numerator)*13 + Current Gain]/14 (Either current gains or
[(Initial RS denominator)*13 + Current Loss]/14 current losses will be 0.)

Step-by-step instructions on calculating and interpreting the RSI are also provided in Mr. Wilder's book, “New Concepts in Technical Trading Systems”.

Caution:
One must be forewarned that a very large up or down movement in price in a single day may skew the computation of the average and produce a false signal.

Centerline: The centerline for RSI is 50. A reading above 50 implies the currency is in a bullish phase as average gains are greater than average losses. Readings below 50 indicate a bearish phase.

Overbought and Oversold Levels: Wilder set the levels at which currencies are overextended at 70 and 30.