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Finance: What is the Relative Strength Index? 2 Views
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Transcript
- 00:00
finance a la shmoop what is the relative strength index as is the satisfaction
- 00:09
gained from a Saturday night date well everything is relative [man and woman kissing in car]
- 00:13
yeah all right when the same is true in stock market and generally speaking when
- 00:16
viewing any given stock its performance is mapped against the overall market and
- 00:22
for most Wall Streeters the overall market is defined as probably the S&P
Full Transcript
- 00:26
500 more or less maybe the Dow may be Nasdaq but that's P 500 kind of what [man discussing S&P 500]
- 00:31
everyone uses so if the market or the S&P 500 was up 20% in a given period and
- 00:36
your stock was up only 10% well then sadly for you even though 10% in a short
- 00:41
period of time is a nice gain it was relatively meh [man gives thumbs up]
- 00:46
yeah its relative strength was meh not so great that's what man means by the
- 00:50
same token if the market was down 20% in that same period and your stock was down
- 00:54
only a 5% well then what squared for you your stock was relatively strong so [stock stamped relatively strong]
- 01:01
what's a good RSI or relative strength index and what's a bad one well every
- 01:05
stock is placed on a scale of 1 zero to a hundred and this scale measures a [RSI scale appears]
- 01:09
stock's recent trading strength if it goes over the 70ish mark well that means
- 01:14
it's moving up rapidly and it's probably overbought so it might make you nervous
- 01:19
if you pay attention to charts and crystal balls when you pick your stocks [girl biting her nails]
- 01:23
well if the thing drops below 30 ish in the same way well then it's likely
- 01:27
oversold maybe you should buy some yeah go go buy some Sears or a big-box [man talking outside Sears]
- 01:32
retailer yeah how about that yeah so there's a reason these things
- 01:35
exist only in a vacuum and and don't help real stock pickers necessarily dot
- 01:40
out their portfolio well in either case overbought or oversold the most likely
- 01:44
scenario is that there's gonna be a return to the mean or a regression to
- 01:48
the mean in the immediate future least if you believe the RSI Index thing you
- 01:52
hear working and yeah you want to know that a stock you own is reliably [stock working out in a gym]
- 01:55
steadily strong and maybe not all over the place in extreme hills and valleys
- 01:59
are great on a ski vacation investing in the stock market well not so much but if [man skis off a slope]
- 02:04
you're gonna do that well get used to the hills they don't go
- 02:06
way
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