Condition: RSI (Relative Strength Index)
1. Purpose and Overview
The Relative Strength Index (RSI) is a technical indicator that measures the strength and momentum of a price movement. It belongs to the category of momentum indicators and is used to identify overbought or oversold market phases.
The RSI moves on a scale between 0 and 100:
- RSI > 70 -> Market is considered overbought
- RSI < 30 -> Market is considered oversold
- RSI between 30 and 70 -> neutral range
The RSI can be used both as an Entry Condition and as an Exit Condition.
2. RSI Calculation
The RSI compares average upward movements with average downward movements within a defined time period.
The standard calculation is performed over 14 periods.
Simplified:
- Average price increases are calculated.
- Average price decreases are calculated.
- The ratio of both values gives the so-called Relative Strength (RS).
- From this Relative Strength, the RSI value between 0 and 100 is then calculated.
The stronger the price increases within the observed time period, the higher the RSI becomes. If price decreases prevail, the RSI falls accordingly.
3. Configuration in OptionsApp
In the Configurations section, you can create a new Entry or Exit Condition using the plus symbol.
3.1 Underlying
In the first field, select the Underlying for which the RSI should be calculated.
Examples:
- SPX
- SPY
- VIX
- other activated Underlyings
The RSI is then calculated exclusively based on this Underlying.
3.2 Indicator
In the second field, select the RSI indicator.
This specifies that the condition is based on the Relative Strength Index.
3.3 Period
In the next field, define the RSI period.
This determines over how many periods the RSI should be calculated.
Examples:
- 14 = default value
- 7 = faster responding RSI
- 21 = more smoothed RSI
By far the most common usage is with a period of 14.
3.4 Data Basis (Close or Close + Current)
Next, specify which price data should be used for the calculation.
Close
Only completed candles are used.
Example on daily basis with period 14:
- Day 1 through day 14 are evaluated as fully completed.
- The current trading day is not included.
This results in a stable RSI value that does not change during the current period.
Close + Current
In addition to completed candles, the current price is included.
Example on daily basis with period 14:
- The past 13 completed days are used.
- For the 14th period, the current price of the current trading day is used.
This causes the RSI to react to current market movements already during the current trading day.
This variant matches the behavior used in Option Omega, for example.
3.5 Time Unit
In the next field, define the time unit.
Possible examples:
- Minute
- Hour
- Day
The time unit determines on which candle basis the RSI is calculated.
Examples:
- RSI(14) on Minute -> calculation over the last 14 minute candles
- RSI(14) on Hour -> calculation over the last 14 hour candles
- RSI(14) on Day -> calculation over the last 14 day candles
The classic and most commonly used variant is the RSI on a daily basis.
3.6 Comparison Operator
Next, define how the RSI value should be evaluated.
Possible operators:
- =
- <
- <=
- >=
Examples:
- RSI > 70
- RSI < 30
- RSI >= 50
3.7 Threshold
In the last field, enter the comparison value.
This value is compared with the currently calculated RSI.
Examples:
- 30
- 50
- 70
4. Typical Use Cases
4.1 Identifying Oversold Market Phase
A Trade should only be opened when the market is considered oversold.
Configuration:
- RSI
- Period: 14
- Close + Current
- Day
- <
- 30
Meaning:
The trade will only be opened if the RSI is exactly at or below 30.
4.2 Identifying Overbought Market Conditions
A trade should only be opened if the market has risen significantly.
Configuration:
- RSI
- Period: 14
- Close + Current
- Day
- 70
Meaning:
The trade will only be opened if the RSI is exactly at 70 or greater than 70.
5. Notes
- The RSI is a momentum indicator that measures the strength of a price movement.
- A high RSI does not necessarily mean that a market will fall immediately.
- A low RSI does not necessarily mean that a market will rise immediately.
- The RSI is often combined with additional Conditions, for example SMA, EMA, ADX/DMI or VIX filters.
- The standard configuration in many trading strategies is RSI(14) on a daily basis.
- By using "Close + Current", the RSI reacts to market movements already during the current candle.
- When using "Close", only completed candles are considered.
6. Summary
The RSI is one of the most well-known technical indicators for measuring market strength and momentum. In OptionsApp, the RSI can be flexibly calculated on a minute, hourly, or daily basis and can be used for both Entry Conditions and Exit Conditions. The most common use is RSI(14) on a daily basis with threshold values of 30 and 70 to identify oversold and overbought market conditions respectively.