Best trading strategies work for 80 to 90 percent.

Personally, I feel that RSI or the relative strength index which is an oscillating momentum indicator is the most accurate technical indicator, not only based on its performance but also based on the user-friendly nature.

RSI uses numbers to indicate the market conditions. This simple approach is very simple for the traders to understand and also these numbers are not any random numbers. The numbers have proper mathematical calculations behind it and have a definite periodic interval. Thus it has all other conditions fixed, which again makes it easier for the trader to understand. Following RSI, Bollinger’s band is the second most accurate indicator.

The relative strength index (RSI) is computed with a two-part calculation that starts with the following formula:

RSIstep one=100−[1001+Average gainAverage loss]$��{�}_{\text{step one}}=100-\left[\frac{100}{1+\frac{\text{Average gain}}{\text{Average loss}}}\right]$RSIstep one​=100−[1+Average lossAverage gain​100​]

The average gain or loss used in the calculation is the average percentage gain or loss during a look-back period. The formula uses a positive value for the average loss.

The standard is to use 14 periods to calculate the initial RSI value. For example, imagine the market closed higher seven out of the past 14 days with an average gain of 1%. The remaining seven days all closed lower with an average loss of -0.8%. The calculation for the first part of the RSI would look like the following expanded calculation:

55.55=100−⎡⎣⎢⎢⎢⎢1001+(1%14)(−0.8%14)⎤⎦⎥⎥⎥⎥$55.55=100-\left[\frac{100}{1+\frac{\left(\frac{1\mathrm{\%}}{14}\right)}{\left(\frac{-0.8\mathrm{\%}}{14}\right)}}\right]$55.55=100−⎣⎢⎡​1+(14−0.8%​)(141%​)​100​⎦⎥⎤​

Once there are 14 periods of data available, the second part of the RSI formula can be calculated. The second step of the calculation smooths the results.

RSIstep two=100−[1001+(Previous Average Gain×13) + Current Gain−((Previous Average Loss×13) + Current Loss)]$��{�}_{\text{step two}}=100-\left[\frac{100}{1+\frac{(\text{Previous Average Gain}\times 13)+\text{Current Gain}}{-((\text{Previous Average Loss}\times 13)+\text{Current Loss})}}\right]$RSIstep two​=100−[1+−((Previous Average Loss×13) + Current Loss)(Previous Average Gain×13) + Current Gain​100​]

Calculation of the RSI

Using the formulas above, RSI can be calculated, where the RSI line can then be plotted beneath an asset's price chart.

The RSI will rise as the number and size of positive closes increase, and it will fall as the number and size of losses increase. The second part of the calculation smooths the result, so the RSI will only near 100 or 0 in a strongly Trending Market.

The RSI compares bullish and bearish price momentum and displays the results in an oscillator that can be placed beneath a price chart. Like most technical indicators, its signals are most reliable when they conform to the long-term trend.

True reversal signals are rare and can be difficult to separate from false alarms. A false positive, for example, would be a bullish crossover followed by a sudden decline in a stock. A false negative would be a situation where there is a bearish crossover, yet the stock accelerated suddenly upward.

Since the indicator displays momentum, it can stay overbought or oversold for a long time when an asset has significant momentum in either direction. Therefore, the RSI is most useful in an oscillating market where the asset price is alternating between bullish and bearish movements.