More extreme high and low levels—80 and 20, or 90 and 10—occur less frequently but indicate stronger momentum. I actually wrote this code. Tutorial about How to use RMI relative momentum index Technical analysis and on stock charts as a momentum indicator to gnerate trading signals.
For each trading period an upward change U or downward change D is calculated. Up periods are characterized by the close being higher than the previous close:.
Conversely, a down period is characterized by the close being lower than the previous period's close note that D is nonetheless a positive number ,. If the last close is the same as the previous, both U and D are zero. Wilder originally formulated the calculation of the moving average as: This is fully equivalent to the aforementioned exponential smoothing. If the average of D values is zero, then according to the equation, the RS value will approach infinity, so that the resulting RSI, as computed below, will approach The relative strength factor is then converted to a relative strength index between 0 and The smoothed moving averages should be appropriately initialized with a simple moving average using the first n values in the price series.
The RSI is presented on a graph above or below the price chart. The indicator has an upper line, typically at 70, a lower line at 30, and a dashed mid-line at Wilder recommended a smoothing period of 14 see exponential smoothing , i.
Wilder posited  that when price moves up very rapidly, at some point it is considered overbought. Likewise, when price falls very rapidly, at some point it is considered oversold. In either case, Wilder deemed a reaction or reversal imminent.
The level of the RSI is a measure of the stock's recent trading strength. The slope of the RSI is directly proportional to the velocity of a change in the trend. The distance traveled by the RSI is proportional to the magnitude of the move. Wilder believed that tops and bottoms are indicated when RSI goes above 70 or drops below Traditionally, RSI readings greater than the 70 level are considered to be in overbought territory, and RSI readings lower than the 30 level are considered to be in oversold territory.
In between the 30 and 70 level is considered neutral, with the 50 level a sign of no trend. Wilder further believed that divergence between RSI and price action is a very strong indication that a market turning point is imminent. Bearish divergence occurs when price makes a new high but the RSI makes a lower high, thus failing to confirm. Bullish divergence occurs when price makes a new low but RSI makes a higher low. Wilder thought that "failure swings" above 70 and below 30 on the RSI are strong indications of market reversals.
If it falls below 72, Wilder would consider this a "failure swing" above Finally, Wilder wrote that chart formations and areas of support and resistance could sometimes be more easily seen on the RSI chart as opposed to the price chart.
The center line for the relative strength index is 50, which is often seen as both the support and resistance line for the indicator. If the relative strength index is below 50, it generally means that the stock's losses are greater than the gains. When the relative strength index is above 50, it generally means that the gains are greater than the losses. Cardwell observed when securities change from uptrend to downtrend and vice versa, the RSI will undergo a "range shift.
Next, Cardwell noted that bearish divergence: Therefore, bearish divergence is a sign confirming an uptrend. Similarly, bullish divergence is a sign confirming a downtrend. Finally, Cardwell discovered the existence of positive and negative reversals in the RSI. Reversals are the opposite of divergence. For example, a positive reversal occurs when an uptrend price correction results in a higher low compared to the last price correction, while RSI results in a lower low compared to the prior correction.
Exactly, I used the formula you wrote. I think that if you program it directly, you'll see the different result from what is offered in TV and other packages. My interpretation of the difference is they need to accelerate the calculation to update only the newest point in real time, and use the rest of series from previous computations.
That leads to screwing up of the original formula. I've seen the reference about modification to some book on www.
Interesting, let me know if you find it. Personally, I build everything thats possible to build from scratch, that way I know exactly what I'm using all of the time: The result was radically different.
I'll keep you posted if I find the reference. The sad thing people taking those indicators for granted. I guess this comes down to interpretation now! Do you think a for loop is necessary to get the correct calculation? The way I see it is pretty straight forward, all done with standard definitions. And I agree, I can't comprehend something until I code it out and experiment, but I have a feeling you take it much further than me! From the creators of MultiCharts.