Stocks & Commodities V. 24:7 (48-52): The Wilson Relative Price Channel by Leon Wilson
Several indicators quantify the relationship between price action and strength. Hereís one adapted from the relative strength index.
For technical analysis to adapt and change, you as the trader must understand the environment in which you operate and be able to think about the strategies and tools to apply. Such analysis will allow your trading style to evolve and you will develop a deeper appreciation for market behavior.
In order to do so, however, you need to question the source of information and the accepted practice of how to use the technique; you must learn to scrutinize information instead of accepting it at face value, regardless of where it may originate.
A VISIT WITH RSI
The most popular index, mainly because itís considered to be one of the most effective, would be the relative strength index (RSI). It is a range-bound index that defines the disparity that exists between higher and lower closing prices.
The conventional application of the RSI is to place it in a
separate pane at the bottom of the screen. You then analyze the behavior and disparity associated with trending activity and the marketís ability to shift the closing price in any direction. Assume that this alternative reflection of the closing price is not only consistent but also generally more beneficial over and above the raw data (the closing price). Although I use the RSI here, the same principles apply to similar range-bound indexes such as money flow, directional
index, and relative volatility.