Adaptive Relative Strength Index
Creating the Adaptive Relative Strength Index for Trading
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The famous Relative Strength Index has been created by Welles Wilder and is followed by a huge number of market participants. The indicator is calculated based on the Smoothed Moving Average values of the absolute changes in the market price. There can be a lot of variations on the RSI. For instance, why not use a Simple Moving Average? or a Hull Moving Average? Also, who says we have to use a 14-period RSI? What about 55-period RSI?
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The Concept of Adaptive Moving Averages
Moving averages help us confirm and ride the trend. They are the most known technical indicator and this is because of their simplicity and their proven track record of adding value to the analyses. We can use them to find support and resistance levels, stops and targets, and to understand the underlying trend. This versatility makes them an indispensable tool in our trading arsenal.
As the name suggests, this is your plain simple mean that is used everywhere in statistics and basically any other part in our lives. It is simply the total values of the observations divided by the number of observations. Mathematically speaking, it can be written down as:
We can see that the moving average is providing decent dynamic support and…
