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Value of RSI - Relitive Strengh Index

Kind of mixed on my feelings for the value of this index. Looking at my stable of potential investments I might invest in and all but healthcare are over 70. And my healthcare choices are in the 68 range. Doesn't look advisable by the RSI index to jump on any of them. But just looking at how high the major indexes are pretty much tells me that. Does anyone use this index? Would it be worth my time to include the calculations in my weekly charts? I think I have some ideas on how to code in my spreadsheets for funds, indexes and sectors. Would not be any additional work then each week as automated. But wondering if worth the initial work. Yea, I can see it on stockcharts, but would take less time each week than having to look it up and I could present it in a meaningful way for me.

Rich

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Re: Value of RSI - Relitive Strengh Index

I think it would be valuable. It does seem some stocks just don't seem to fit the formula, but even this is speculating. The more material, usually the better.

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Re: Value of RSI - Relative Strength Index

RSI(14) is an interesting indicator. It is included in Stockcharts by default although it can be replaced by other indicators. Its normal range is 30-70 but in some cases, readings above 70 [extreme bullishness] and below 30 [extreme bearishness] persist. 

There are 2 elements to it - direction and extent of movement. High RSI can be achieved in 2 ways. First, when daily moves are small but most are up moves. If all 14 days are up [very unlikely], then RSI will be 100. Second, when several up-moves are large. Reverse for low RSI.

Another pattern that I have observed is that RSI tends to remain above 50, or below 50, for some time, so crossing of 50 may indicate a trend change. This may confirm what other indicators may be telling.

YBB
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Re: Value of RSI - Relative Strength Index

I don't know if RS works with funds. But it did work for us.

When we used individual stocks (1994-2005) in our 80/20 port to beat 100% SPY by 5% CAGR RS was very very important.

1. Market cap > X

2. Excellent financials

3. Low PEG

4. Sort by best 12 mo RS

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Re: Value of RSI - Relative Strength Index

RS is defined as price ratio of 2 assets..

RSI is something else - it is based on 14-day movements of the prices of a single asset.

YBB
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Re: Value of RSI - Relative Strength Index

I don't doubt you for a second.

I learned about RS from "What Works on Wall Street" by James O'Shaugnessy.

Back in the 1990s we called "momentum" "relative strength".


@yogibearbull wrote:

RS is defined as price ratio of 2 assets..

RSI is something else - it is based on 14-day movements of the prices of a single asset.


 

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Re: Value of RSI - Relitive Strengh Index

Hi @RichinKansas ,

I don't like to use just one type of indicator. Instead, I prefer to use one type from each group.

RSI is a popular MOMENTUM indicator, and I think it is more useful to find a bottom than a top. MACD is a popular TREND indicator, so why not MACD (trend) the RSI (momentum)?  

xlv rsi.jpg

I lined up the "dots" on the March 23 low so you can see how the timing of the different indicators compare. RSI was helpful on the bottom, the MACD'd RSI gave confirmation, and the stand alone MACD followed.  So the MACD'd RSI is a hybrid.

Add support and resistance, along with your favorite volume indicator and the picture is more complete. Price is near resistance, the MACD trend is muddy, and the MACD'd RSI shows flattened strength. 

The CMF shows accumulation is slightly weakening.  This means that the closing price is trending a little further from the daily high, or the closing price is trending a little closer to the daily low if you care to think about it that way. But, accumulation is still positive as the demand for shares drives the price higher against the number of those looking to sell at resistance. CMF adds this "weakening" or "strengthening" nuance to momentum and trend. It is consistent with the MACD'd RSI.

Meanwhile, RSI can bounce around at it's present level for quite a while.

Holiday

 

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Re: Value of RSI - Relitive Strengh Index

Well I got the formulas working and confirmed my RSI matches stockcharts. Then it was a matter of copying the chart calculation to each of my funds, sectors and indexes. I had used RSI in my charts years ago but had to manually update each every week. What a pain. Now it is automatic each weekend as I download files from yahoo finance, S&P and others. Also a have a summary sheet that I have added to. Now with come of your observations I will look at how meaningful it is.

Rich

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