Here, one of the most popular indicators found in most analytical software packages is explained. When the relative strength index (RSI) became popular in the 1980s, it was touted as the indicator that led every turn in the market. Indeed, for certain futures contracts, financials and currencies, it could be prescient: In those markets, it had the peculiar ability to turn just as the financials would find a level of support or resistance before taking off to another price level. On other items, say, pork bellies or corn or cocoa, it would ape the price swings precisely. However, on trending prices, it would go up the limits of its excursion and bounce around there for weeks or months until the trend finally reversed. For stocks, its performance could be all over, depending on the trading characteristics of the stock in question. Clearly, this was an indicator with promise but tricky implementation. |
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