V. 19:12 (96-97, 110-111): Threshold Trading Revisited by Rudy Teseo

V. 19:12 (96-97, 110-111): Threshold Trading Revisited by Rudy Teseo
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Threshold Trading Revisited by Rudy Teseo

An introduction for newcomers or a refresher for old-timers: Here are a couple of tools we sometimes forget to use.

In trading jargon, the “threshold” refers to the presignal area of overbought/oversold indicators — the area above or below the limits set in threshold-crossing indicators. The relative strength index (RSI) and stochastics are probably the best known threshold-crossing indicators and are great for creating entry and exit trading signals. The presignal areas — the “thresholds” — are useful for knowing when to act, whether you’re buying or selling.


The relative strength index (RSI), developed by J. Welles Wilder, is a single-component oscillator that ranges between zero and 100%. This oscillator actually measures the ratio of recent upward price changes to downward price changes within the same security over a specified period, which Wilder defined as 14. Since then other periods have been suggested — mainly three, nine, and 25. When the up and down movements are equal, the RSI is at 50%. When U>D, the indicator will be somewhere between 50% and 100%. When U

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