Using Metastock to Analyses RSI

Using Metastock to Analyses RSI - Using Metastock to...

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Using Metastock to Analyses RSI I. General Statement The Relative Strength Index ( RSI ) is a technical indicator used in the technical analysis of financial markets . It is intended to chart the current and historical strength or weakness of a stock or market based on the closing prices of a recent trading period. The indicator should not be confused with relative strength . The RSI is classified as a momentum oscillator , measuring the velocity and magnitude of directional price movements. Momentum is the rate of the rise or fall in price. The RSI computes momentum as the ratio of higher closes to lower closes: stocks which have had more or stronger positive changes have a higher RSI than stocks which have had more or stronger negative changes. II. Calculation 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: U = close now − close previous D = 0 Conversely, a down period is characterized by the close being lower than the previous period's (note that D is nonetheless a positive number), U = 0 D = close previous − close now If the last close is the same as the previous, both U and D are zero. The average U and D are calculated using an n -period exponential moving average (EMA). The ratio of these averages is the Relative Strength :
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If the average of D values is zero, then the RSI value is defined as 100. The Relative Strength is then converted to a Relative Strength Index between 0 and 100: The exponential moving averages should be appropriately initialized with a simple average using the first n values in the price series. III. Principles 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 30. 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. IV. Rule to choose company that suitable for RSI - Have a long historical data Taking the prior value plus the current value is a smoothing technique similar to that used in exponential moving average calculation. This also means that RSI values become more accurate as the calculation period extends - Stocks have high volatility: RSI is a indication that shows of the trends of a stock or commodity or market index. This doesn’t measure
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This note was uploaded on 05/02/2011 for the course FINANCE 9924603 taught by Professor Ssgdbfb during the Spring '11 term at Kyung Hee.

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Using Metastock to Analyses RSI - Using Metastock to...

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