The RSI is a technical indicator generally used with the general setting being 14 days, and often shorter.
The accepted view is that a level of 70 indicates overbought conditions, and 30 indicates oversold conditions.
A short RSI setting will give signals quite often, and they might sometimes contradict each other.
As a individual investor, perhaps with a background in fundamental analysis, the RSI might be overlooked for other fundamental metrics.
But the idea here is that longer RSI settings can be used for investing.
The problem that arises is how to know when the indicator has reached a level that is either overbought or oversold.
This script solves that by using a specific look back period (selectable, but the standard is 1 year), and plotting the highest/lowest value that the RSI has had for that time period.
The idea is that a buy signal occurs when the indicator is at a 'historic' low, and a sell signal occurs when it at its 'historic' high.
Since you generally want to buy when the indicator is at its low, and has stopped decreasing, the script comes with a function that shows you when yesterdays value reached a historic low, but todays value is higher than yesterday.
This is shown by a color change of the background to green. The same is true, but opposite, for sell signals and then the background turns red.
THIS IS NOT TRADING ADVICE, AND YOU SHOULD ALWAYS DO YOUR OWN RESEARCH
This is working great!!!
Thanks for shared it, I have been a strong follower of you now!
Felixmn
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@energetic_live, Nice that you like it!
ElManu123
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I really like your alternative to the classic RSI for identifying post-buy opportunities. Thanks for that.
However, I intend to do more like one or two post-buys per year. Using the Coca-Cola stock as an example, your model generates a total of four buy signals in a short period of time in 2018. On 04 January 2018, 06 February 2018, 09 February 2018 and 26 March 2018. The buy on 04 January 2018 would have been a bit early.
Do you maybe have an idea how to filter further to be more selective here? Changing the RSI length or period did not lead to any success for me at least.
Thank you
ElManu123
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Addition: The currency used is Euro.
Felixmn
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@ElManu123, 'Choppy' signals is a reoccurring problem when using indicators. Either the signal is too "fast" and generates too many signals, some being too early. Or else the signal is too "slow" and misses a lot of opportunities. In my view, this will always be a problem with indicators. One has to choose which is worse and try to avoid that.
In my opinion the Long RSI is good at finding extreme values that might be close to a turning point. But it is not exact, as no indicator is. To mitigate the problem with too many, and potentially early, signals one could divide up the amount one is aiming to buy and make a couple of smaller buys.
ElManu123
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@Felixmn, Thank you for your reply. Do not misunderstand me. I think your indicator is already very precise. The buy signals generally occur at the time of the turning point; at least for the Coca-Cola stock.
I was thinking perhaps of an indicator that could be used as a supplement. For example, a shorter term RSI to avoid too early entries? Currently, however, I do not have any concrete idea.
What do you think?
P.S.: If you don't have time for a discussion, let me know :)
Felixmn
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@ElManu123, There is an abundance of options. Either, as you're saying, use a short term RSI like 2-day or 4-day as used by Linda Raschke, or one could use a Stochastic and wait for it to turn from its highest value to dropping just below (when selling) or vice versa (when buying).
Pokemontcg68
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I have to say I really like the historic low and high marks, it's way better than regular RSI. It makes sense to me most importantly (as a beginner). Thank you for sharing this RSI indicator.
Thanks for shared it, I have been a strong follower of you now!