Stock Predictor trading strategy

Relative Strength Index

The Relative Strength Index (RSI) compares the size of a stock’s recent gains with its recent losses and is plotted on a scale from 0 to 100. A high RSI means the stock is overbought; a low RSI means it is oversold.

Strategy group

Relative Strength Index strategies

Based on

RSI

Typical parameters

m = 14 days, w = 20, v = 80

This strategy uses the absolute values of RSI. It buys when RSI falls below a lower limit w and sells when RSI rises above an upper limit v. Common pairs of limits are 20/80 and 30/70.

Trading signals

• Buy when RSI falls below the lower limit w.
• Sell when RSI rises above the upper limit v.

Strategy rules

IF RSI(m) > v
   THEN GO SHORT
ELSE IF RSI(m) < w
   THEN GO LONG

Where RSI(m) is the m-day Relative Strength Index and v > w.

See also: example chart and how the Relative Strength Index indicator is calculated.