It is an accepted fact that the simple geometric formula resolutely declaring, "pi (3.1416) times 'd,' the diameter ofa circle" yields its circumference. This simple formula has dramatically changed the world that we live in. The formula for calculating the Relative Strength Index is also relatively simple. In some ways, this formula for calculating the Relative Strength Index has just as profoundly changed the trading world in the few short years since its introduction.
In this section, we will discuss the math and perhaps more importantly, the logic of the math that is used in computing the Relative Strength Index. The single ending RSI value is the ratio calculation between the average increase in price versus the average decrease in price over a pre-defined period of time. It is a front-weighted momentum indicator, which gives it the ability to respond quickly to price changes. Because of its mathematical construction, it is also less affected by the sharp price swings that occur from time to time in markets.