All Forums | Investments

Need help w/ a math calcution re: RSI.........

Participants:
Search model icon
Views: 372
Posts: 8
 
Prospect
Participation Meter
Joined: Feb, 2008
Posts: 31
Posted: #1
Have found the formula that calculates thiS, but not hving a strong math background , I am having trouble w/ the formula. Was hoping someone w/ a strong math background could explain this , as knowing this number before markets open , would really help in trading options (or stocks) .

Description

The Relative Strength Index (also known as RSI) is a momentum indicator that was developed by J. Welles Wilder in 1978. It is calculated using the price, and is used as an oscillator showing overbought and oversold levels. The RSI compares the upward price movement to downward price movement over the specified timeframe, and displays the result as a momentum line oscillating between 0 and 100. The RSI is displayed on its own chart, separate from the price bars, and is the lower section in the chart shown above.
Calculation
  • Description : The RSI is the ratio of exponential moving averages of the upward (U) and downward (D) price movements, normalized into a value between 0 and 100.
  • Calculation :
    U = Pn - Pn-1
    D = Pn - Pn-1
    EMAUP = EMAUn-1 + ((2 / (n + 1)) * (Un - EMAUn-1))
    EMADOWN = EMADn-1 + ((2 / (n + 1)) * (Dn - EMADn-1))

    RSI = 100 X (EMAUP / (EMAUP + EMADOWN))
Trading Use

The RSI can be used in both ranging and trending markets, and therefore can be used in several different ways. The RSI can be used to identify an overbought level when it is above 70, and an oversold level when it is below 30. The RSI can also be used as a divergence indicator, with entries based upon divergence bbetween the RSI and the price bar.

Any help here would be greatly appreciated !!!
 
Covers Linesmen
Participation Meter
Joined: Feb, 2003
Posts: 56851
Posted: #2
Just out of curiousity, why are you wanting to know how to calculate it? Is this for a math course or somthing?

RSI is merely a reflection of past trading action on a stock and is interesting to observe but the real application of it is severely limited because the equation is merely if the stock closed higher or lower versus knowing the money flow and any reasoning behind the stock going up or down (meaning the markets decline or rise vs the actual stock itself).

I watch RSI but I dont trade off it exclusively by any means.
 
Prospect
Participation Meter
Joined: Feb, 2008
Posts: 31
Posted: #3
Quote Originally Posted by wallstreetcappers:

Just out of curiousity, why are you wanting to know how to calculate it? Is this for a math course or somthing?

RSI is merely a reflection of past trading action on a stock and is interesting to observe but the real application of it is severely limited because the equation is merely if the stock closed higher or lower versus knowing the money flow and any reasoning behind the stock going up or down (meaning the markets decline or rise vs the actual stock itself).

I watch RSI but I dont trade off it exclusively by any means.

 

.........no , it's not for classroom application, I use it in tandem w/ daily moves in the cash market to short the S&P index during bear markets. Considering we are probably on the verge of the greatest bear in history , I wanted to know HOW it is derived . I know how I use it , but am looking to see if , by finding out how it is actually calculated,  it can be useful in predicitng RSI tops/bottoms ahead of the market, as opposed to behind it.

 
Covers Linesmen
Participation Meter
Joined: Feb, 2003
Posts: 56851
Posted: #4
The problem with what you are wanting is RSI reflects what the market is doing and DID, so you cannot properly forecast where RSI is going due to the fact it can and will change based on the market itself.

Here is an example..

RSI on the SPX is at 50 right now. If you overlay the SPX with the RSI you will see very similar results, outside small differences, if the market is going lower, so is the SPX and when the market goes up, so does RSI.

Here is a good explanation for you-

LINK

Read through the whole thing..all RSI is basically is a function of averaging the market going up and down over a 14 day period, because that SMOOTHS out the calculation and makes it more reliable versus a shorter time frame.

In my view RSI cannot be traded off, nor can it be forecasted. I have seen RSI stay below 30 and above 90 for EXTENDED periods of time..enough that you would be screwed trying to trade off it, I have also seen the RSI whipsaw back and forth and back and forth right near the extreme points.

I once discussed another theory concerning moneyflow and divergence that calculated REAL moneyflow, and you can buy such a service..THAT has value.

Using technical indicators which really only are a function of what the market has DONE, are just nice tools..nothing more and on their own are not sufficient enough to trade off, unless you are using ultra tight stops and have like 10 indicators to use.


 
Prospect
Participation Meter
Joined: Feb, 2008
Posts: 31
Posted: #5
I once discussed another theory concerning moneyflow and divergence that calculated REAL moneyflow, and you can buy such a service..THAT has value.
 
This is EXACTLY how I am currently using it. I don't trade off it per se , rather I use it as a tool , in conjunction w/ the cash market moves, to identify false intra day rallies and double tops/bottoms that are NOT confirmed by the RSI. It has proven succesfull over the last few years , and was just looking for some deeper understanding of how it is derived . Thanks for the link, som einteresting info there !!
 
Rookie
Participation Meter
Joined: Mar, 2006
Posts: 597
Posted: #6
cetic33,
 
check out stockcharts.com
 
You can look at the RSI on almost any security or index. I second Wallstreets advice that you should not trade based on RSI. If anything, maybe use it to determine a good entry point for putting new capital into the market.
 
Extremely oversold conditions can persist for a long time (as wallstreet mentioned) but if you put capital in when the market is extremely oversold, you will be ahead in the long run.
 
Rookie
Participation Meter
Joined: Mar, 2006
Posts: 597
Posted: #7
maybe I should click on a link before I respond!!
 
wallstreet already sent you to stockcharts.com. good recommendation by him, sorry for the repitition
 
 
Prospect
Participation Meter
Joined: Feb, 2008
Posts: 31
Posted: #8
Quote Originally Posted by krafcikrr:

maybe I should click on a link before I respond!!
 
wallstreet already sent you to stockcharts.com. good recommendation by him, sorry for the repitition

np........thanks for the input guys !!! Have had
........thanks for the input guys !!! Have had STOCKCHARTS bookmarked for a while , as well as ............https://www.cboe.com/Strategies/IndexOptions/BuyingIndexPuts/Part1.aspx.
 
One of the shops I am currently using right now is offering naked options, so am trying to learn the nuances of that trading strategy. RSI is helpful, for my intraday moves , and identifying entry/exit points. Am currently trading monthly PUTS , but am considering parking money in an ETF (SDS) while in between contracts, and down the raod some , am also considering LEAPS as a good way to fade the S&P as a whole. Any thoughts some of you more seasoned tradrs might have would be greatly apprecited !!
 
 
 
 

 

 

All Forums | Investments
About Us
Contact Us
Careers
Our Team
Brand
Testimonials
Betting Guides
Sportsbook Reviews
Sports Betting News
Podcasts
Responsible Gaming
Sports Betting
US Betting Sites
Canada Betting Sites
Canada Casinos
Best Betting Apps
Contests
Streak Survivor
King of Covers
Ultimate Race
Office Pools
The Covers community has
618,670
lifetime members worldwide
Covers 25 Years Logo Established in 1995,
Covers is the world
leader in sports
betting information.
Site Map Help Privacy Terms of Service youtube logo facebook logo twitter logo instagram logo linkedin logo google news logo
Covers is verified safe by: Evalon Logo GPWA Logo GDPR Logo GeoTrust Logo Evalon Logo
Copyright © 1995 - 2025 CS Media Limited All Rights Reserved.

If you choose to make use of any information on this website including online sports betting services from any websites that may be featured on this website, we strongly recommend that you carefully check your local laws before doing so.It is your sole responsibility to understand your local laws and observe them strictly.Covers does not provide any advice or guidance as to the legality of online sports betting or other online gambling activities within your jurisdiction and you are responsible for complying with laws that are applicable to you in your relevant locality.Covers disclaims all liability associated with your use of this website and use of any information contained on it.As a condition of using this website, you agree to hold the owner of this website harmless from any claims arising from your use of any services on any third party website that may be featured by Covers.