Relative strength Index or RSI is a complicated indicator. It is evaluates as follows:
RSI = 100 - [100 / (1+RS)] where RS is the ratio of exponentially smoothed moving average of n- period gains, to exp. smoothed moving average of n- period losses.
RSI only takes into consideration the close price of the stock. This indicator takes many values from the past so it may be seen as better than other indicators which may take only one value from the past i.e. the ROC for example. Therefore, we can say that RSI is more reliable than other indicators though again the RS value ratio may complicate things by adding some noise and make the indicator sometimes unreliable.
The RSI does not work well with small values of n and it works better with higher values of the period n, therefore it is better to work with high values of n.
One way to use RSI is to buy when the RSI crosses above 50%, while to sell when RSI crosses below 50%. For n = 21- day the best results were manifested in backtesting trials. In this setting, in overall, this indicator fared well in the backtesting trials thus, it may be a good tool to use for trading.
RSI = 100 - [100 / (1+RS)] where RS is the ratio of exponentially smoothed moving average of n- period gains, to exp. smoothed moving average of n- period losses.
RSI only takes into consideration the close price of the stock. This indicator takes many values from the past so it may be seen as better than other indicators which may take only one value from the past i.e. the ROC for example. Therefore, we can say that RSI is more reliable than other indicators though again the RS value ratio may complicate things by adding some noise and make the indicator sometimes unreliable.
The RSI does not work well with small values of n and it works better with higher values of the period n, therefore it is better to work with high values of n.
One way to use RSI is to buy when the RSI crosses above 50%, while to sell when RSI crosses below 50%. For n = 21- day the best results were manifested in backtesting trials. In this setting, in overall, this indicator fared well in the backtesting trials thus, it may be a good tool to use for trading.
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