NISM Certifications · NISM-Series-XV: Research Analyst · Technical Analysis
The Relative Strength Index (RSI) is computed with RS = average gain / average loss over the look-back period. If the average gain is 3 points and the average loss is 1 point, what is the RSI?
The RSI is 75. Relative strength is average gain divided by average loss, which equals 3. RSI then equals 100 minus 100 divided by (1 plus 3), that is 100 minus 25, giving 75, which is in the overbought zone above 70.
- A25
- B50
- C75Correct
- D300
Explanation
RS = 3/1 = 3. RSI = 100 - 100/(1+RS) = 100 - 100/4 = 75. The value 25 results from swapping gain and loss, and 300 is just RS multiplied by 100, which ignores the formula.
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