| OCT 1985
Facelift for an Old Favorite by Gregory L. Morris
Facelift for an Old Favorite by Gregory L. Morris ""There are many ways in which the Relative Strength Index can be adjusted and redefined."" Technical analysts who have not heard of J. Welles Wilder, Jr., and more specifically, his Relative Strength Index, probably have not delved into the art of technical analysis with much enthusiasm. The Relative Strength Index (RSI) was first presented in his now-classic book, New Concepts in Technical Trading Systems, published in 1978. Those who are familiar with RSI know that it is a very useful momentum indicator because its range is always between 0 and 100. This alleviates the problem of how high is high and how low is low. Another interpretation is its use as a divergence indication; that is, when the indicator and the price do not follow the same pattern. Normally, at tops, the price will continue to make higher highs while the indicator makes lower highs. When used in this manner, the opposite occurs at bottoms. More on this later. Just how good is this indicator, especially when everyone is using it!? Let's face it, the indicator was created in 1978 when there weren't too many personal computers around. I was using red, green, and blue pencils along with a desk calculator. Let's look at the formula for RSI. Basically, it is the average of the last 14 up days divided by the average of the last 14 down days. I am using 14 days in this example because that appears to be the most popular. The data used is the difference between today's close and yesterday's close. If today was up two points, then it is the two points difference that are figured into the formula, not the price itself. The Relative Strength formula is as follows:
by Gregory L. Morris
Technical Analysis of STOCKS & COMMODITIES
The Traders’ Magazine since 1982
has had over 1,226,237 subscribers from 174 different countries.
37,000 Page Traders’ Archive for $89.99
To continue reading, sign-up for trial access to Traders.com and the S&C Archive — 37,000 pages of trading ideas!
After verifying your email address, you will have limited access to the S&C Archive, as well as access to a Digital Edition of S&C, and access to Traders.com Advantage and Working Money for 30 days.
Not a subscriber to Technical Analysis of
STOCKS & COMMODITIES magazine?
Click
here to subscribe, or request
a trial subscription.
Log-in now to view articles from the S&C Archive.
Your Subscriber ID is located at the top of your magazine label, highlighted here in red.
Your last name can be found on the second line, highlighted here in blue.
*If you have a company name on the label, that can also be used. It will appear below your name on the label.
If you do not have a Subscriber ID on your label, you can find it on your statement or renewal form.
For help locating your Subscriber ID number, please call us at 1-800-832-4642 or send an email to Survey@Traders.com. If sending an email, please include your name and mailing address.