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Over the years numerous technical indicators have
been developed to describe the stock performance, or, hopefully to predict future price
movements. In this section we introduce five of the most useful indicators, provide
examples, and explain how they are calculated.
RSI
Figure 6. RSI
RSI stands for Relative Strength Indicator. In order to compute the p-period
RSI, one first computes the p one-period changes.
Then one computes the average of the up changes U and down changes D:
Then
We can see that, if the price goes up in every single period, one needs to rely on a
small number such as 0.0001 to D to avoid dividing U by zero, so that RSI=99.99%.
If the price goes down in every period, RSI=0.
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