NISM Certifications · NISM-Series-XV: Research Analyst · Technical Analysis
A stock's closing prices over a 14-day period show an average gain of Rs 3 on up days and an average loss of Rs 1.5 on down days, with the averages computed over the whole 14 days. Using the basic RSI formula, what is the RSI?
The RSI is about 66.7. Relative strength is the average gain of Rs 3 divided by the average loss of Rs 1.5, which is 2. RSI equals 100 minus 100 divided by (1 plus 2), giving 66.7, which is below the usual overbought level of 70.
- A50.0
- B66.7Correct
- C33.3
- D75.0
Explanation
RS = 3/1.5 = 2. RSI = 100 - 100/(1+RS) = 100 - 100/3 = 66.67. The value 33.3 results from inverting RS to 0.5, and 50 would need equal gains and losses.
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