Thursday, July 28, 2011

Insignificance of RSI

RSI or Relative Strength Indicator is one of the popular technical analysis indicators.

It is assumed that RSI above 70 signals market is overbought, while its level below 30 suggests oversold condition.

Let's take a look at the relation between RSI(14) and historical daily changes of S&P500:

Fig. daily changes versus RSI

It doesn't gets any  better at different time scales...

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