RSI is a good momentum indicator

Published 20 February 2019

A research report from Investtech based on 23 years of data from the Norwegian Oslo Stock Exchange, and 16 years of data from the stock exchanges in Sweden, Denmark and Finland, shows that stocks with high RSI, above the critical 70 level, have continued to rise. Similarly stocks with low RSI, below the critical 30 level, have continued to underperform vs benchmark.  

RSI is an oft-used indicator in technical analysis. RSI means Relative Strength Index, and it measures how well a stock has performed compared to itself. The figure is calculated by looking at the strength of days with rising prices compared to strength of days with falling prices over a certain period of time and it gets a value between 0 and 100.

Many investors feel that RSI indicates whether a stock has risen or fallen too much and will react back. Investtech’s research shows that this overbought/oversold interpretation is not statistically correct. The results show that RSI is a good indicator of whether the stock has positive momentum or negative momentum and that this “RSI momentum” is a good indicator of future price development.

We have studied 35,733 cases where RSI21 crossed above the 70 limit and 23,590 cases where RSI21 fell below the 30 limit. We called this strategy RSI momentum and called it a buy signal when RSI went above 70 and a sell signal when RSI fell below 30.

Figure 1. RSI21 Norway. Price development the first 66 days after RSI momentum signals in Norway. Stocks with buy signal on average rose by 6.4 per cent and stocks with sell signal fell by 0.9 per cent. Average benchmark index was up 3.1 per cent.

The table below shows average annualized excess return following RSI momentum signals. The figures are based on the quarterly figures, i.e. return 66 days (3 months) after signal was triggered.

Annualized excess return Norway Sweden Denmark Finland Weighted average
Buy signal RSI21 breaks above 70 14.4 %p 6.5 %p 10.8 %p 6.9 %p 9.1 %p
Sell signal RSI21 breaks below 30 -15.8 %p -10.2 %p -11.3 %p -7.5 %p -11.6 %p

%p: percentage points

The combined results indicate that RSI is a well-suited momentum indicator and that investments based on buy signals from RSI momentum give statistically stronger return than average benchmark.

Please find more results and details in the full research report here.

 

We conducted the same study on the Indian market and the results show that buy signals from RSI momentum have given an annualized excess return of 9 percentage points in India. Read the report here.

 

Keywords: Buy signal,h_RsiHigh,h_RsiLow,RSI,RSI-momentum,Sell signal,statistics.

Geschreven door

Geir Linløkken
Hoofd research en analyse
in Investtech

"Investtech analyseert de psychologie in de markt en geeft u iedere dag concrete trading-voorstellen."

Espen Grønstad
Partner & Senior Advisor - Investtech
 


Investeringsaanbevelingen worden gedaan door Investtech.com AS ("Investtech"). Investtech garandeert geen volledigheid of juistheid van de analyses. Eventuele fouten in de aanbevelingen, koop- en verkoopsignalen en mogelijke negatieve gevolgen hiervan zijn geheel het risico van de belegger. Investtech neemt geen enkele verantwoordelijkheid voor verlies, direct of indirect, als gevolg van het gebruik van Investtechs analyses. Meer informatie omtrent Investtechs analyses kunt u vinden op disclaimer.


Investeringsaanbevelingen worden gedaan door Investtech.com AS ("Investtech"). Investtech garandeert geen volledigheid of juistheid van de analyses. Eventuele fouten in de aanbevelingen, koop- en verkoopsignalen en mogelijke negatieve gevolgen hiervan zijn geheel het risico van de belegger. Investtech neemt geen enkele verantwoordelijkheid voor verlies, direct of indirect, als gevolg van het gebruik van Investtechs analyses. Meer informatie omtrent Investtechs analyses kunt u vinden op disclaimer.

Titlex

OK
+

Cookie consent

We use cookies to give you a better user experience. If you continue to use the website, you accept this. For further details click here.

Our use of cookies

When you use our website, we store a cookie on your device. The cookie is used to recognize your device so that your settings work when you use our websites. The information that is stored is completely anonymised. Cookies are automatically deleted after a certain time.

Necessary cookies

Investtech uses cookies to ensure basic functions such as page navigation and language selection. Without such cookies, the website does not function as it should. You cannot therefore make a reservation against these. If you still want to disable such cookies you can do so in your browser settings. In the Cookies section add this website to the list of sites which are not allowed to save cookies on your device.

Cookies from Google

We use services from Google Analytics and Google AdWords. These register cookies on your device when you visit our website. Google registers your IP address in order to keep statistics on user activity on the website. The IP address is anonymised, so that we have no opportunity to link the activities to a specific person. We use these statistics to be able to offer more interesting content on the website and to constantly improve ourselves. Google AdWords collects data so that our advertising on other websites gives better results. We cannot trace the data of individuals.

Allow cookies from Google