V. 26:10 (24-30): ARSI, The Asymmetrical RSI by Sylvain Vervoort

ARSI, The Asymmetrical RSI by Sylvain Vervoort

The RSI has always been useful in identifying divergences. Here’s a modification of this popular indicator that could be even more reliable.

The relative strength index (RSI) is a momentum indicator measuring the speed at which a security’s price is changing. Early signaling for entry and exit points is the main advantage of this leading indicator. The RSI calculation separates one-bar net change over a defined period into positive closing prices and negative closing prices, then smoothes that data with an average and finally normalizes the ratio on a scale of zero to 100.

The RSI formula:

RSI = 100 – 100/(1 + RS)

Where the relative strength (RS) equals:

RS =Up closing average/Down closing average

The RS value is the average gain divided by the average loss over the selected RSI period.

For an up closing average, when the closing price of the present bar is higher than the previous one, the price difference is averaged based on the RSI period. J. Welles Wilder uses an exponential average of twice the RSI period minus 1. The same is done for a down closing average or when the closing price of the actual bar is lower than the previous bar (expressed in positive values). This means that the averaging period has no relation to the number of up or down bars in the RSI period.