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Financial Forecast for the Relative Strength Index

Author

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  • Alfaro, Rodrigo
  • Sagner, Andres

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.

Suggested Citation

  • Alfaro, Rodrigo & Sagner, Andres, 2010. "Financial Forecast for the Relative Strength Index," MPRA Paper 25913, University Library of Munich, Germany, revised Apr 2010.
    • Handle: RePEc:pra:mprapa:25913
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    File URL: https://mpra.ub.uni-muenchen.de/25913/1/MPRA_paper_25913.pdf
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    References listed on IDEAS

    as
    1. Ana María Abarca G. & Felipe Alarcón G. & Pablo Pincheira B. & Jorge Selaive C., 2007. "Nominal Exchange Rate in Chile: Predictions based on technical analysis," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 10(2), pages 57-80, August.
    2. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
    3. Ullah, Aman, 2004. "Finite Sample Econometrics," OUP Catalogue, Oxford University Press, number 9780198774488.
    4. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
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    Cited by:

    1. Zhenglong Li & Vincent Tam & Kwan L. Yeung, 2024. "Developing A Multi-Agent and Self-Adaptive Framework with Deep Reinforcement Learning for Dynamic Portfolio Risk Management," Papers 2402.00515, arXiv.org, revised Feb 2024.

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    More about this item

    Keywords

    Relative Strength Index; Binomial Model; Financial Forecast;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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