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RSI - A deeper look inside

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Hey guys and gals,

I'm writing this blog for 2 main reasons -

1. to test the new, easier to use Blog interface, and

2. to go through some random charts with the aim of looking at the RSI more closely - also to find out the correlation between the RSI and EWT - if indeed there is a strong links 

In order to do this with no bias other than the assumptions I already have, I am literally going to pick out random charts, aswell as different timelines in order to see if there is any pattern that can be identified.

** Note - some or most of you will probably already know or understand any correlation or patterns identified with RSI/Divergence/EWT - but I feel this could be a beneficial exercise for me regardless, and no harm can come of it I imagine. I am also testing out the blogging software as previously discussed.

So - to start off, let me define that I already have a bias in terms with how I feel an RSI performs in the case of reversals etc. I think this can be directly linked to Elliot Wave Theory. In the case of a standard EWT 1 through 5 waves, I would expect the RSI (which measures the relative strength of particular moves) to perform as follows:

--------------------------

Definitions:
HH = Higher High 
HL = Higher Low
LH = Lower High
LL = Lower Low

--------------------------

Wave 1 - RSI peak
Wave 2 - RSI HL
Wave 3 (most powerful move) - RSI HH
Wave 4 - RSI HL
Wave 5 - RSI LH

Wave 5, although is higher in price action - is actually a weaker move than the previous 3rd wave, which is the theory behind a weaker RSI move.

Within each wave is also smaller intermediate waves - so when a larger price move peak is reached, it is my opinion that you often see divergence at the top to indicate the peak.

One issue I had early in my trading is often I had identified what I believed to be a peak, where there was one diverging RSI peak, then price action would beat that high with ANOTHER diverging RSI peak. This is when I started noticing that it happened quie frequently.

This is why I want to write this blog (regardless of the writing quality - or lack of more to the point!)
I see this as a worthwhile exercise to put something publicly, so that I cannot kid myself on if the conclusion diverges away from the bias opinion I have.

So - onto the structure quickly. We will use high volume charts that we all have charted - 2 Forex, 2 Index', and 2 Shares:

Eur/USD
USD/JPY (one I haven't really charted

Dow
FTSE

GKP - again not one I have really charted, but I know others have
AAPL - Just for the sh*t of it since I haven't charted either

Since it is late - and I'm tired - I will maybe just run through the EUR/USD chart tonight and see what patterns I can identify. In order to this, I will first identify all major peaks, and then look at the behaviour of the RSI leading up to that peak. I will also only look at uptrending moves. Not out of any bias - purely out of simplicity. I believe the RSI will behave the same regardless - but it is definitely something I will be looking at at a later stage regardless of my thoughts.

So EUR/USD - Weekly


b2ap3_thumbnail_Eur_Usd_-_weekly_RSI_test.png


Next blog up we will look up some closer up examples of the Eur/USD chart - as these peaks also have intermediate peaks that we can maybe look closer into.

Apologies for what seems like only half a blog - I was meant to do this over the weekend but time ran away from me hence the rushed fashion of the post. I am now heading to bed - hopefully I will get something a bit more substantial for blog 2.

On a side note - the blog is very easy to write, and all the tools are available for more seasoned bloggers - give it a try!

 

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Comments

  • remo
    remo Tuesday, 02 April 2013

    Thanks gclark25 for the blog.
    looking forward to part 2.
    Thanks mate

  • remo
    remo Tuesday, 02 April 2013

    :D:D:D:D:D:D:D:D

  • diver993
    diver993 Wednesday, 03 April 2013

    If you keep looking I'm sure you will find it is impossible to label EWT without the help of the RSI, especially for motive waves. I look forward to the continuation.....

  • ronnie
    ronnie Wednesday, 03 April 2013

    Great blogging mate! :)

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