ajtj's Post-Lobotomy Market Charts and Thoughts Message Board

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Strategies & Market Trends : ajtj's Post-Lobotomy Market Charts and Thoughts

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From: Sun Tzu	10/23/2023 11:58:02 AM
	Read Replies (1) of 97691

An issue that all traders face is how much faith they should put into their technical indicators. The answer, to a good part, is what are you applying that indicator to. Here I look at the RSI. Below are two plots of the regular RSI that we all know and love. Everything in the settings is the same...so fancy programming on my part. The upper indicator is the RSI of typical PnL of the market participants. The lower one is the RSI of the market price. Needless to say they correlate closely. But when examined carefully, there are subtle differences. The histogram examines these differences. It can be considered a measure of how much confidence you should put into your read of the RSI. I observe that if the RSI is overbought and the histogram is flashing red, it may be wise to take some profits. I've highlighted some recent points when the histogram flashed red and the market was overbought and when it flashed green and the market was oversold. Note that the histogram is a measure of risk in trusting the RSI. It is an indicator of an indicator - not an indicator of the price. EDIT - This tool needs a bit more work...I will update later

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