Listen to a Business English Dialogue About Relative strength indicator
Violet: Hey Billy, have you heard of the relative strength indicator in finance?
Billy: Yeah, Violet. It’s a tool used by traders to measure the strength of a security’s price movement relative to its past performance.
Violet: Right. So, if the indicator shows a high value, it means the security is performing well compared to its own history?
Billy: Exactly. And if it shows a low value, it suggests the security might be weaker compared to its past performance.
Violet: How is the relative strength indicator calculated?
Billy: It’s calculated by comparing the average gain of up periods to the average loss of down periods over a specific time frame, usually 14 days.
Violet: So, if the indicator value is above 70, it indicates the security might be overbought?
Billy: That’s correct. And if it’s below 30, it suggests the security might be oversold.
Violet: How do traders use this information in their decision-making?
Billy: Traders use the relative strength indicator to identify potential buy or sell signals. For example, they might consider selling if the indicator shows the security is overbought.
Violet: And they might consider buying if it’s oversold?
Billy: Exactly. It’s one of the tools traders use to help them make informed decisions in the stock market.
Violet: Thanks for explaining, Billy. I have a better understanding of how the relative strength indicator works now.
Billy: No problem, Violet. If you have any more questions about finance or business, feel free to ask anytime.
