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1. Calculate the nine-day decay factor (DF) for an exponential moving average (EMA). An EMA uses a series of values in a manner such that newer values have an exponentially greater impact on the average. The nine-day DF, which specifies how fast impact falls away, is equal to 2/(N+1) = 2(9+1) = 0.2, where N is the number of days.
2. Compute the exponential moving average (EMA) for the previous nine 'up' periods (opening prices below closing prices). Each period's closing price is designated by Yt, where t is equal to one through nine. The nine-day EMA (S) is equal to DF * Yt + (1 -- DF) * (the previous period's S), or 0.2 * Yt + 0.8 * (previous S). You start with two days and reiterate the formula until you get the nine-day solution.
3. Perform the same calculation using the nine previous 'down' periods (opening prices above closing prices). You now have two EMA values representing the strength of uptrends and downtrends, respectively.
4. Calculate the relative strength (RS) by dividing the up EMA by the down EMA. If the down EMA happens to equal zero, assign the RS a value of 100.
5. Calculate the RSI. It is equal to 100 -- (100 / (1 + RS)). You can use this number to predict either a trend continuation or a trend reversal, depending upon your trading strategy. In either strategy, an extreme RSI value---below 10 or above 90---signals that a momentum reversal may be imminent.