TAILIEUCHUNG - MEASURING INTERNAL STRENGTH: WILDER’S RSI INDICATOR

TECHNICAL ANALYSIS MEASURING INTERNAL STRENGTH: WILDER’S RSI INDICATOR By Wayne A. Thorp Wilder’s relative strength index measures a stock’s price relative to itself over time. Its popularity lies in its versatility in identifying market extremes and illustrating points of divergence that may indicate an approaching reversal of price trend. In his 1978 book, “New Concepts in Technical Trading Systems,” J. Welles Wilder (Trade Research) introduced the relative strength index (RSI). This indicator, which has gone on to become one of the most widely used technical indicators, is a momentum indicator that belongs to a family of indicators called oscillators. An oscillator gets its name. | TECHNICAL ANALYSIS M MEASURING wilder-slrsiindicator By Wayne A. Thorp Wilder s relative strength index measures a stock s price relative to itself over time. Its popularity lies in its versatility in identifying market extremes and illustrating points of divergence that may indicate an approaching reversal of price trend. In his 1978 book New Concepts in Technical Trading Systems J. Welles Wilder Trade Research introduced the relative strength index RSI . This indicator which has gone on to become one of the most widely used technical indicators is a momentum indicator that belongs to a family of indicators called oscillators. An oscillator gets its name from the fact that it moves or oscillates between two fixed values based on the price movement of a security or index. Wilder s RSI should not be confused with relative strength figures that appear in publications such as the Investor s Business Daily and AAII s Stock Investor program. Those relative strength calculations compare the price movement of a security or index against the price movement of some broad market measure such as the S P 500. In other words they show how well a particular index or security has done relative to the broader market. Perhaps a better name for the Wilder RSI would be the internal strength index the RSI compares the price relative to itself. The RSI has been found to have the most favorable results when used in the futures and commodities markets. Furthermore the RSI is most used over a short trading period both of which make the RSI best-suited for active trading or short-term investors. However it is also used with equities mutual funds and indexes. The reason for its popularity lies in its versatility mainly in identifying market extremes and illustrating points of divergence that may indicate an approaching reversal of the price trend. Furthermore research indicates that for shorter periods RSIs are leading indicators meaning that they signal price tops and bottoms before they .

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