Stocks can be shortlisted using the metric Relative Strength Index to help you focus on the best stocks that are trend upward and the best stocks that are trending downwards.

Relative Strength Index (RSI) is a technical analysis tool. It measures the strength of a particular stock against others in the stock market. Hence it is about relative strength of a stock. Its index ranges from 0 to 100 with lower values implying worst performing stocks and higher values implying the best.

The worst or best is in terms of long buying strategy only. So the stocks with very low RSI say 10 or below are extreme candidates for short selling. However downside to such low RSI is that the liquidity may be low or jerk movements may be frequent. Hence for short selling only stocks above RSI of 20 but falling from 40 are chosen.

For selecting stocks for buy long strategy, one should simply short list those that have the highest RSI. Here too highest RSI implies stocks moving very rapidly upwards. But the liquidity only improves with high prices unlike low RSI stocks. Any stock whose RSI is starting to go up from 60 is a candidate to watch. If the stock has RSI greater than 80 or highest among others in the same industry, it is right candicate to trade on pullbacks for huge gains.

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Relative Strength Index like other technical analysis tools is a tool help a stock trader make better choices in selecting stocks and making entry or exit decision. But it in itself is the holy grail. It is however a simpler technical tool that any charting software or website can provide you with for any stock chart.

Good luck with your stock shortlisting for long or short strategies and don’t forget to read more of my articles on stock trading!

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