Stock Technical Analysis – Relative Strength Index (RSI)

  • Type: momentum oscillator
  • Data requirement: daily closes for individual stock
  • Inputs
    • no. of periods (n) to use (suggested default is 14)
    • previous average gain
    • previous average loss
    • current gain
    • current loss
  • Formulas
    • Gain = close(k) – close(k-1), when close(k) is higher than close(k-1), where k is the trading day for calculation
    • Loss = close(k-1) – close(k), when close(k) is lower than close(k-1), where k is the trading day for calculation
    • Initial
      • First Average Gain = Sum of Gains over the past n periods / n
      • First Average Loss = Sum of Losses over the past n periods / n
    • Subsequent
      • Average Gain = [(Previous Average Gain) x (n-1) + Current Gain] / n
      • Average Loss = [(Previous Average Loss) x (n-1) + Current Gain] / n
    • RS = Average Gain / Average Loss
    • RSI = 100 – 100 / (1 + RS)
  • Signals
    • Oversold: below 30
    • Overbought: above 70
    • Divergences
    • Failure swings
    • Centerline crossovers
    • General trend
  • c.f. http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:relative_strength_in
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Create a free website or blog at WordPress.com.

Up ↑

%d bloggers like this: