The RSI calculates the ratio of up-moves to down-moves and normalizes the result to produce an index with a range of 0-100. J.Welles Wilder was the one who came up with the idea. If the RSI is greater than 70, the instrument is considered overbought (a situation whereby prices have risen more than market expectations). An RSI of 30 or less indicates that the instrument is likely to be oversold (a situation in which prices have fallen more than the market expectations). With this knowledge, we can use the RSI indicator to our advantage when day trading.
Based on the two equations RSI formula is obtained. to solve RSI equations, these two equations are also needed to be solved. using the first component equation, the initial RS value is obtained. over the N period, this value shows the ratio of avg. up closes to avg. down closes. RSI formula
RS = Average of 'N' day's closes up / Average of 'N' day's closes down
We’ll talk about how to use the RSI indicator for day trading presently. Using the RSI indicator as a day trading strategy is quite advantageous for many traders. For most traders, especially swing traders, the default RSI level of 14 periods is adequate.
However, while utilizing the RSI indicator for day trading, some intraday traders utilize different settings. They prefer not to use the 14 settings because it creates infrequent trade signals. As a result, some traders choose to reduce their time frame, while others choose to reduce the RSI period to boost the oscillator’s sensitivity. Some traders address this issue by reducing their time frame.