Relative Strength Indicator has been around for centuries. It was developed by Welles Wilder and it is used by traders as a momentum indicator or oscillator. The indicator measures the relative strength of the stock with itself.
Popular charting software uses 14 day RSI as a means to determine overbought and oversold conditions. However, it is also possible to use a shorter time frame to determine the possible trends of a stock in the next few days. One example is the 2 day RSI.
If you plot the 2 day RSI of the KLCI index, you can see that the 2 day RSI moves to the overbought level more often than it moves to oversold level. I have used a value of 5 for oversold and 95 for overbought. This simple observation indicates that the index is actually in an up trend market.
In an up trend market, the best strategy is to buy on dips. And there were 3 signals to buy if you wait for the index to fall to oversold levels.
