Volatility Momentum in Python

Coding and Trading a Volatility-Adjusted RSI in Python

Structured indicators are the result of fusing two or more together to form a weighted or adjusted indicator that takes into account more variables. For example, we know that there is a Stochastic-RSI indicator which combines the two formulas together in an attempt to improve the signals, this article discusses the creation of an RSI-ATR indicator which adjusts the RSI for the average true range, a measure of volatility.

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Contrarian Trading Strategies in Python

The Relative Strength Index

First introduced by J. Welles Wilder Jr., the RSI is one of the most popular and versatile technical indicators. Mainly used as a contrarian indicator where extreme values signal a reaction that can be exploited. Typically, we use the following steps to calculate the default RSI:

• Calculate the change in the closing prices from the previous ones.
• Separate the positive net changes from the negative net changes.
• Calculate a smoothed moving average on the positive net changes and on the absolute values of the negative net changes.
• Divide the smoothed positive changes by the smoothed negative changes. We will refer to this calculation as the Relative Strength — RS.
• Apply the normalization formula shown below for every time step to get the RSI.