NISM Certifications · NISM-Series-XV: Research Analyst · Technical Analysis
A trader computes the Relative Strength Index using the standard formula RSI = 100 - 100/(1+RS). If the average gain over the look-back period is Rs 3 and the average loss is Rs 1, what is the RSI?
The RSI is 75. Relative strength is average gain divided by average loss, which is 3. Applying 100 minus 100 divided by (1 plus 3) gives 75, indicating strong upward momentum approaching the typical overbought level of 70.
- A75Correct
- B25
- C66.7
- D80
Explanation
RS = 3/1 = 3. RSI = 100 - 100/(1+3) = 100 - 25 = 75. Check: RSI also equals 100 x gain/(gain+loss) = 100 x 3/4 = 75. The value 25 comes from inverting gains and losses.
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