Here, one of the most popular indicators found in most
analytical software packages is explained.
When the relative strength index
(RSI) became popular in the
1980s, it was touted as the indicator
that led every turn in the
market. Indeed, for certain futures
contracts, financials and
currencies, it could be prescient:
In those markets, it had the peculiar
ability to turn just as the
financials would find a level of support or resistance before
taking off to another price level.
On other items, say, pork bellies or corn or cocoa, it would
ape the price swings precisely. However, on trending prices,
it would go up the limits of its excursion and bounce around
there for weeks or months until the trend finally reversed. For stocks, its performance could be all over, depending on the trading characteristics of the stock in question.
Clearly, this was an indicator with promise but tricky