Calculate the absolute loss in each of the 5 days. This will give the figure of average up closes.Ģ. Add the absolute gain of each day and divide by 14. Calculate the absolute gain in each of the 9 up days. In this case, the Relative Strength Index is calculated as followsġ. However, an analyst is free to decide the number of days for computing the same.įor example, during a 14-day trading period assume that a security has generated positive returns on 9 days and negative returns on 5 days. Wilder used the 14 day RSI, which is still the most commonly used RSI. RS (Relative Strength) = Average of X days up closes / Average of X days down closes RSI compares the magnitude of average gains and average losses of a security for drawing inferences about its strength and weakness over a predetermined time period.ĭESCRIPTION: Relative Strength is computed using the formula Momentum oscillator measures the velocity and magnitude of price movements of a security. It was introduced by Welles Wilder in June 1978 and its computation is explained in detail in his book New Concepts in Technical Trading System. For example: an investor who can earn 10 per cent every year by investing in US Bonds, would set a required rate of return of 12 per cent for a riskier investment before considering it.įormula for Required Rate of Return Required Rate of Return = Risk Free Rate + Risk Co-efficient (Expected Return - Risk free return)ĭEFINITION: Relative Strength Index (acronym RSI) is one of the most extensively used momentum oscillators in the realm of technical analysis of stocks.

Finance professionals routinely calculate the required rate of return for purchasing new equipment, new product rollouts and potential mergers. For instance, someone requiring a higher rate of return would necessarily have to look at riskier investments. The required rate of return drives the type of investments that can be made.

When calculating the required rate of return, investors look at overall market returns, risk-free rate of return, volatility of the stock and overall project cost. Definition: Required Rate of return is the minimum acceptable return on investment sought by individuals or companies considering an investment opportunity.ĭescription: Investors across the world use the required rate of return to calculate the minimum return they would accept on an investment, after taking into consideration all available options.

Relative strength index today