Financial Forecast for the Relative Strength Index

Alfaro, Rodrigo and Sagner, Andres (2010): Financial Forecast for the Relative Strength Index.

Abstract

In this paper we provide a closed-form expression for one of the most popular index in Technical Analysis: the Relative Strength Index (RSI). Given that we show how the standard binomial model for the stock price can be used to predict RSI. The algorithm is as simple as to code a standard European option. In an empirical application to the Chilean exchange rate we show how the method works having a better out of sample performance than an ARMA(1,1) model.

• Item Type: MPRA Paper
• Language: English
• Keywords: Relative Strength Index, Binomial Model, Financial Forecast
• Subjects: G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications

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