RSI stands for Relative Strength Index. It's a technical indicator used by traders to measure the strength of a stock's price movement. In simple terms, RSI tells you if a stock might be overbought or oversold.
RSI ranges from 0 to 100.
• If RSI is above 70, the stock may be overbought (too expensive).
• If RSI is below 30, the stock may be oversold (too cheap).
Traders use RSI to help time their trades. If a penny stock has an RSI below 30, it might be a buying opportunity. If it’s above 70, it might be time to sell or wait.
While the math behind RSI is more advanced, you don’t need to do it yourself. Trading platforms and stock chart websites (like TradingView) calculate it for you.
Example: A penny stock drops sharply and the RSI hits 25. This could signal the stock is oversold. If volume increases and price stabilizes, it might be a sign to buy.