What is the difference between the Relative Momentum Index (RMI) indicator and the Relative Strength Index (RSI) indicator when overbought and oversold?
1/1/2023
Relative Momentum Index (RMI) One of the disadvantages of the
RSI is that the
RSI itself is not always evenly distributed between the
overbought and
oversold 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 or
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 and
oversold ranges and deliver a more accurate signal.