ShmoopTube

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finance a la shmoop what is the relative strength index as is the satisfaction

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gained from a Saturday night date well everything is relative [man and woman kissing in car]

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yeah all right when the same is true in stock market and generally speaking when

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viewing any given stock its performance is mapped against the overall market and

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for most Wall Streeters the overall market is defined as probably the S&P

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500 more or less maybe the Dow may be Nasdaq but that's P 500 kind of what [man discussing S&P 500]

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everyone uses so if the market or the S&P 500 was up 20% in a given period and

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your stock was up only 10% well then sadly for you even though 10% in a short

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period of time is a nice gain it was relatively meh [man gives thumbs up]

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yeah its relative strength was meh not so great that's what man means by the

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same token if the market was down 20% in that same period and your stock was down

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only a 5% well then what squared for you your stock was relatively strong so [stock stamped relatively strong]

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what's a good RSI or relative strength index and what's a bad one well every

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stock is placed on a scale of 1 zero to a hundred and this scale measures a [RSI scale appears]

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stock's recent trading strength if it goes over the 70ish mark well that means

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it's moving up rapidly and it's probably overbought so it might make you nervous

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if you pay attention to charts and crystal balls when you pick your stocks [girl biting her nails]

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well if the thing drops below 30 ish in the same way well then it's likely

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oversold maybe you should buy some yeah go go buy some Sears or a big-box [man talking outside Sears]

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retailer yeah how about that yeah so there's a reason these things

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exist only in a vacuum and and don't help real stock pickers necessarily dot

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out their portfolio well in either case overbought or oversold the most likely

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scenario is that there's gonna be a return to the mean or a regression to

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the mean in the immediate future least if you believe the RSI Index thing you

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hear working and yeah you want to know that a stock you own is reliably [stock working out in a gym]

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steadily strong and maybe not all over the place in extreme hills and valleys

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are great on a ski vacation investing in the stock market well not so much but if [man skis off a slope]

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you're gonna do that well get used to the hills they don't go

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way

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