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RSI Auto Adjusted

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RSI Auto Adjusted

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  #1 (permalink)
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Reading a Spanish author book (Oscar Cagigas) I have came across an interesting idea:
The idea is to use a short time RSI adjusting the upper and low bands according to volatility. Instead of looking for crosses with the 30/70 bands we make these bands to be variables depending on volatility.
We calculate the bands this way:

w=1,8*StDev (RSI (5),5);
Long Crosing: Cross (Cross (RSI (5), 50-w)

w is a intermediate variable that calculates the 5 period RSI standart deviation and multiply it for a constant (1,8). We calculate the lowest band substracting to the medium line (50) the RSI volatility, and forthe upper band adding 50 to the volatility (scaling in for 1,8 in both cases). In this way when market is flat, volatility will be low and the bands will be closer to the 50 line. When volatility is increasing, w value increases and we will have a band dedecreasing... This way we avoid wrong signals.

Can anyone, please, moddify an RSI indicator using this information and share it with all of usuarios
Thank you!

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  #2 (permalink)
Legendary Market Wizard
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Interesting concept.

Wonder why they picked 1.8.
Assuming RSI output is normally distributed then 1.8 * Std Dev means you will be generating signals on the 3.6% of extremes.

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  #3 (permalink)
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No idea why 1,8

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  #4 (permalink)
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Pablherasgarcia View Post
No idea why 1,8

There is a book:

However, to me, 1.8 seems arbitrary. Perhaps it's one of those self-fulfilling prophecies.

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