RSI is the acronym for “Relative Strength Index.” The RSI was created in 1978 by J. Welles Wilder to compare the strength and magnitude of a stock’s gains and losses in recent time periods. The simple formula converts this winning and losing data into a number ranging from 0 to 100.
To keep the analysis simple, you should examine the RSI’s three factors: RS (relative strength), Average Gains, and Average Losses. The formula: 100 – (100/RS + 1), where RS is the Average Gain divided by the Average Loss over the period being studied.
Most analysts use the acronym “RSI” instead of its full name as there are other “relative strength” formula developed by analysts. These “competitors” tend to be more complex and use data from multiple stocks instead of just one as used by the RSI. As a newer investor, the RSI should be more relevant as you try to determine the relative strength or weakness of a security you’re considering putting into or removing from your portfolio.