Volume-weighted RSI: money flow
by Gene Quong and Avrum Soudack
The Relative Strength Index (RSI) by J. Welles Wilder Jr. is one of the most popular technical
indicators. RSI is included in most of the technical analysis software available today. Anyone conversant
with the algorithm used to calculate RSI knows that only the closing price is used. We believe RSI can be
improved by using volume to weight the index.
Classic market tops are characterized by an increase in volume. Technical indicators which rely only on
price changes do not reflect the whole picture. Volume can vary by an order of magnitude in selloffs. We
believe that RSI's failure to account for volume is a serious deficiency because volume can vary widely in
market tops and bottoms.
In an effort to improve the RSI we have devised a unique short-term technical indicator called Money
Flow Index (MFI). This indicator attempts to measure the strength of money entering and leaving the