NISM Certifications · NISM-Series-XV: Research Analyst · Technical Analysis
Over 14 periods, the average gain of a stock is 3 points and the average loss is 1 point. Using the standard RSI formula, RSI = 100 - 100/(1+RS) with RS = average gain / average loss, what is the RSI?
The RSI is 75. Relative strength is 3 divided by 1, which is 3, and RSI equals 100 minus 100 divided by 4, giving 75. This is above the conventional 70 level, which is typically read as overbought.
- A75Correct
- B25
- C66.7
- D80
Explanation
RS = 3/1 = 3. RSI = 100 - 100/(1+3) = 100 - 25 = 75. A value of 25 results from wrongly using 100/(1+RS) directly. A value of 66.7 would come from RS = 2.
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