‘The Relative Strength Index can be used as a measure to gauge the strength of the buyers’ strength or the sellers’ strength based on a scale of 30-70 being the weights. When the price of the stock cuts from below and goes upwards i.e. above 70 mark it can be viewed as domination of the buyers in the market and sellers’ domination in case the trend goes down cutting from above the 30 mark. When the price goes above the 70 mark and then after a certain period begins to dip down the 70 mark it can interpreted as overbought position wherein the market has witnessed too much of buying and the traders are looking to sell the stock, and conversely for the oversold position when the price cuts from below the 30 mark.
Based on the principles above, the Relative Strength Indicator has been clearly represented above with the help of chart on the company ‘Glaxo SmithKline Pharmaceuticals Ltd’ during the period from March 2018 to June 2018. It can also be noted that both the Overbought position and the Oversold position can be witnessed in the above graph. Also, the appropriate entry price, stop loss and target price have been derived.
