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 Gold Customer
Joined: 12/2/2004
Posts: 28
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Greetings
Is there a training video available for Wilder's RSI like the excellent video Craig S. made for MACD?
Also, the TC2000/05 help section definition of Wilder's RSI mentions that it can show a divergence with price. How?
Thanks!
Best Regards
JP
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Worden Trainer
Joined: 10/1/2004
Posts: 4,308
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There is not currently a training video on Wilder's RSI. I suspect there will be at some point.
A divergence between price and any other indicator is basically the same. It simply means that, from Point A to Point B on the chart, price and the indicator behaved differently.
Examples:
- Price moved up, indicator didn't
- Indicator hit a new high, price didn't
- Price stayed flat, indicator moved decisively up or down
Again, anytime price and the indicator behaved differently over a particular period, you have a divergence. A bullish divergence is when the indicator behaved more bullishly than price. A bearish divergence is when the indicator behaved more bearishly than price. In other words, naming a divergence as either bullish or bearish depends on how the indicator behaved, rather than how price behaved.
- Doug
Teaching Online!
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Worden Trainer
Joined: 10/1/2004
Posts: 18,819
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RSI is in the works for inclusion in the UNDERSTANDING series. I am not exactly sure when it will be made, though.
The technique taught in the video below can be used with any indicator, including RSI.
Using Linear Regression Sorts to Help Spot Divergences
- Craig
Here to Help!
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Gold Customer
Joined: 12/2/2004
Posts: 28
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I think I'm misunderstanding what RSI is.
I'm sure the video Craig recommends would be useful if I had a clearer understanding.
The definition in TC centers around RSIs use to determine overbought and oversold condition within a trend. I can't seem to get beyond that to see how it indicates divergences.
I think Doug's explanation tailored specificly to RSI would help clear the fog.
Thanks
JP
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Worden Trainer
Joined: 10/1/2004
Posts: 18,819
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I will put RSI higher on the UNDERSTANDING VIDEO to do list. Understanding Stochastics is scheduled for release in the next 48 hours. I will be on vacation next week but will start work on UNDERSTANDING RSI as soon as I get back.
Here is a VERY brief description to tide you over:
RSI compares the magnitude of up closes in a period to the magnitude of down closes. As the average of up closes increase vs. the average of down closes, the indicator rises.
Normally you would expect when price is rising the RSI to rise as well. When price falls, you expect RSI to fall as well. When one rises and the other falls there is a divergence.
Does that help?
- Craig
Here to Help!
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Gold Customer
Joined: 12/2/2004
Posts: 28
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Thanks Craig!
That helps immensely.
I'm almost there. Just one more question.
What would be the significance of the divergence?
The more I think about that, the more confused I make myself.
What would it mean if RSI was rising while price was falling, and conversly, what would it mean if RSI was falling while price was rising?
Thanks
Jim
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Worden Trainer
Joined: 10/1/2004
Posts: 18,819
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Take a step back and think about what RSI is doing.
It compares the average magnitude of up days to the average magnitude of down days.
Now answer these questions for yourself, keep in mind what I said above about the indicator.
If RSI is at a new high what does that mean?
Would you expect Price to be at a new high then too?
What if Price makes a new high for the chart, what would you expect RSI to do (again, keeping in mind how the indicator is calculated)?
What if RSI starts to fall while price makes a new high. What does RSI falling mean? What has to be happening for it to fall?
How could price make new highs with a falling RSI?
Would a falling RSI bode well for price's ability to continue the rally?
Now reverse this and imagine a falling price with a rising RSI.
What makes RSI rise? What does THAT mean?
What does it say about a falling price if RSI starts to turn around and rise?
Don't get lost in the lines on a chart. Thank about what MAKES those lines move. They are not magic, they are just formulas.
- Craig
Here to Help!
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Registered User
Joined: 1/1/2005
Posts: 2,645
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Jim,
It may be helpful to know that the plot of RSI is a plot the ratio of the sum of the up changes to the sum of the magnitudes of all changes, up and down, over the period chosen. The ratio is multiplied by 100 to make it range 0 to 100. There are variations to using sums.
The number of up changes and down changes is not relavent, only their magnitudes are. Their ratio, numbers or sums of magnitudes, is not what is plotted.
Thanks,
Jim Murphy
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Registered User
Joined: 1/1/2005
Posts: 2,645
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Wilder left us with the impression that he did not know that:
100-100/(1+Up/Down) = 100*Up/(Up+Down)
Efforts to explain the left-side have led to decades of bewilderment; whereas, an explanation of the right-side is quite simple.
Thanks,
Jim Murphy
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