The RSI Smoothed by John F. Ehlers
Here’s how you can enhance the performance of the RSI.
Smoothing an indicator usually means a tradeoff between the amount of smoothing you desire and the amount of lag you can stand. In this article I will show you how the relative strength index (RSI), an indicator developed by J. Welles Wilder, can be smoothed and enhanced with a minimum of lag penalty.
J. Welles Wilder defined the RSI as
RSI = 100 – [100 / (1 + RS)]
where RS = (closes up) / (closes down)
or = CU / CD
RS is shorthand for relative strength. CU is the sum of the difference in closing prices over the observation period where that difference is positive. Similarly, CD is the sum of the difference in closing prices during the observation period where that difference is negative, but the sum is expressed as a positive number. When you substitute CU/CD for RS and simplify the RSI equation, you get. . .