What is the difference between the Relative Momentum Index (RMI) indicator and the Relative Strength Index (RSI) indicator when overbought and oversold?
Relative Momentum Index (RMI)
One of the disadvantages of the RSI
is that the RSI
itself is not always evenly distributed between the overbought
areas due to the effect of calculating the parameter and denominator in the formula, which can sometimes skew the distribution of the RSI
toward the overbought
areas. Too much oversold in either way, making the signal unsuitable for short-term use. Some people solve this problem by using a moving average as a supplement to send trading signals, some people use a trend line charting technique to supplement.
To address this disadvantage, Roger Altman proposed an idea to improve the RSI
with one more parameter: instead of measuring today's price change compared to yesterday's gain or loss, it measures the change in price. Today versus 3 days ago, which is a measure of y-day Momentum. Therefore, Altman calls this updated RSI the y Relative Momentum Index (RMI) indicator
We can also say that the RSI
is a special case of the RMI
, that is, the RSI
is the RMI
in case y=1. Since the RSI
compares today's price with yesterday's price, the value of the RMI
ranges between 0 to 100 and its interpretation or analysis is exactly the same as RSI
, but has the advantage that If we choose a good y value for Momentum
calculations, it will help the RMI
to spread well overbought
ranges and deliver a more accurate signal.