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Dimitri,
Constance Brown in her book "Technical Analysis for the Trading Professional", advocates that the 30/70 is not appropriate as
constants, and should be modified depending upon recent history. For example after an RSI > 70 period then a decline to 40 is
significant and vice versa, i.e 30/70 shpould be applied with judgement.
Secondly the non zeroing of RSI and its lack of sensitivity beyond the 70/30 is a fault with its ideal of normalising. Constances
suggested opened the door to eve better understanding for me. I would suggest that rather than using the RSI() supplied that you
play around with actual formula and try and achieve the following:
no upper/lower limit,
able to cross zero
can have negative numbers
I have done this with ADX with some satisfaction. I would also suggest that additonal terms can be included inside the RSI formula
to increase sensivity to certain events when they are present. I would also suggest that where ever possible ema and ma not be used
except when trying to establish long term baselines. You may not like the jerkiness without them, but the peak values take on
significance in magnitude and timing after you use the reconstructed formulas that ema and ma do their best to blurr.
Both RSI() and ADX() in my view are horses of different colours because both are associated with volatility breakout. The results of
one are similar to the other.
I hope this helps with your search.
P
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