CMA Final · Strategic Financial Management · Fundamental Analysis and Technical Analysis
Over 14 days, the average of the up-closes of a share was Rs 3.00 per day and the average of the down-closes was Rs 1.00 per day (both averaged over 14 days). Using the standard RSI formula, what is the RSI?
The RSI is 75. Relative strength is average gain divided by average loss, which is 3, and RSI equals 100 minus 100 divided by (1 plus 3), giving 75. This level is above 70 and is usually read as an overbought signal.
- A25
- B33.3
- C75Correct
- D66.7
Explanation
RS = 3.00/1.00 = 3. RSI = 100 - 100/(1+RS) = 100 - 100/4 = 75. The value 25 results from inverting RS, i.e., using the down average as numerator.
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