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Financial Forecast for the Relative Strength Index

Rodrigo Alfaro () and Andres Sagner ()

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper we provide a closed-form expression for one of the most popular index in Technical Analysis: the Relative Strength Index (RSI). Given that we show how the standard binomial model for the stock price can be used to predict RSI. The algorithm is as simple as to code a standard European option. In an empirical application to the Chilean exchange rate we show how the method works having a better out of sample performance than an ARMA(1,1) model.

Keywords: Relative Strength Index; Binomial Model; Financial Forecast (search for similar items in EconPapers)
JEL-codes: G14 E37 (search for similar items in EconPapers)
Date: 2010-04, Revised 2010-04
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