(By Arthur Hill)
RSI settings depend on your analysis objectives. The default setting for RSI is 14 periods. However, when looking for short-term overbought/oversold readings, I like to use a shorter look-back period. Often, this is 10 days, which covers two weeks. When looking to capture general trend, a longer look-back period works better because it is less choppy.
The sensitivity of a momentum oscillator depends on the number of look-back periods. 10-period RSI will be more sensitive than 20-period RSI. This means 10-period RSI will produce more overbought (>70) and oversold readings (<30).>
The chart above shows RSI with 10, 14 and 20 periods. Notice that the actual line shapes are virtually equal. The biggest difference is the number of overbought/oversold readings and the crosses above/below 50.
Oscillator sensitivity is also influenced by the underlying security. Volatile securities will produce wider swings in RSI. An index, like the S&P 500, is generally less volatile than individual stocks. 10-period RSI for Amazon will be more volatile than 10-period RSI for the S&P 500.
