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1994issue C121-2

Averaging Relative Strength Index and the stochastic oscillator into one reversal oscillator

Relative Strength Index is constructed from closes only, while the stochastic oscillator uses high, low and close. Both are treated as series that oscillate between 0 and 100. Adding stochastic percent-d to Relative Strength Index and dividing by 2 forms a hybrid series that usually lies between those two plots, so a pair of commonly used levels that are unlikely to coincide can be read as one series and one simple reversal procedure.

  • Relative Strength Index is built from closes only, while the stochastic oscillator uses high, low and close. Both are treated as series that oscillate between 0 and 100.
  • A hybrid series is formed by adding stochastic percent-d to Relative Strength Index and dividing by 2. That hybrid series is described as usually lying between the two source plots.
  • Requiring Relative Strength Index below 20 and the stochastic oscillator below 30 at the same time is presented as a pair of commonly used levels that are unlikely to coincide.
  • After all three series are plotted together, the example treats hybrid values below 35 as oversold and values above 70 as overbought, then uses those bands as opposite reversal entries.
Entries in this reading3 entries
Current trackMomentum strategy103 readingsStochastic oscillator170 readingsRelative Strength Index186 readings

Two oscillators on different prices

Relative Strength Index is constructed from closes only, while the stochastic oscillator uses high, low and close. Both Relative Strength Index and the stochastic oscillator are treated as series that oscillate between 0 and 100.

A pair of levels that is unlikely to coincide

Requiring Relative Strength Index below 20 and the stochastic oscillator below 30 at the same time is presented as a pair of commonly used levels that are unlikely to coincide.

Form one hybrid series

A hybrid series is formed by adding stochastic percent-d to Relative Strength Index and dividing by 2. Relative Strength Index is one equally weighted input. Percent-d from the stochastic oscillator is the other equally weighted input. The hybrid series is described as usually lying between the Relative Strength Index plot and the stochastic plot.

The illustrated formulas use a five-day stochastic percent-d and a five-day Relative Strength Index lookback.

Read overbought and oversold on a shared chart

Hybrid overbought and oversold levels are chosen by plotting Relative Strength Index, the stochastic oscillator and the hybrid series on the same chart. In the illustrated example, hybrid values above 70 are treated as overbought and values below 35 as oversold.

Use the hybrid series as a reversal procedure

The example long rule is hybrid below 35 and the example short rule is hybrid above 70, forming a simple reversal procedure. That momentum procedure treats hybrid oversold and overbought readings as opposite entries, with no separate flat state in the example.

The example test of that reversal procedure omitted slippage and commission.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
19 of 51 in the Momentum strategy track
19951-5 pp.Next on Momentum strategyDividend-yield regression as a hold versus momentum gateA monthly starting-dividend-yield series was aligned with the decade-ahead-return realized on the same broad index.
All readings on this track · 51 readings
  1. 1984Half-cycle differencing for momentum signals
  2. 1987Relative strength evaluation under competing optimization criteria
  3. 1988Weekly MACD as a two-clock momentum confirmation stack
  4. 1989Equal-weight zero-cross from smoothed spreads
  5. 1989Testing relative-strength-index reversal rules against trend continuation
  6. 1989Smoothed three-day futures filter for index option bounces
  7. 1989Cycle-length windows for momentum, Relative Strength Index, and stochastic construction
  8. 1991Filtered rally magnitude as a bull-regime breakout
  9. 1992Constructing true strength from double-smoothed momentum
  10. 1992Constructing a double-smoothed true strength index
  11. 1993When momentum structure and breadth break together
  12. 1993Constructing double-smoothed range and momentum oscillators
  13. 1993Constructing a two-parameter relative momentum index
  14. 1993Building a bounded momentum oscillator with RSI smoothing
  15. 1993Two-speed oscillators with divergence and trendline gates
  16. 1993Constructing a relative momentum index from the relative strength index
  17. 1994Constructing daily advance-decline breadth tools
  18. 1994Building a composite regime score from monetary climate and weekly trend
  19. 1994Averaging Relative Strength Index and the stochastic oscillator into one reversal oscillator
  20. 1995Dividend-yield regression as a hold versus momentum gate
  21. 1996Jump and hold filters for long-term Treasury yield direction
  22. 1997Constructing extendedness from a 10 percent swing filter
  23. 1997A range-expansion oscillator that can refuse its own stretch
  24. 1997RSI trend permission and Fibonacci pullback rules
  25. 1998Nested midpoint construction for a range-normalized oscillator
  26. 1999Evaluating Relative Strength Index momentum with zero-line and threshold rules
  27. 1999Treat RSI and momentum as three mechanical procedures
  28. 2000Thrust strength figure from moving-average swings
  29. 2001Constructing a non-range-bound balance of market power score
  30. 2004Cleaned breadth oscillator and new-high divergence: a swing-market case file
  31. 2004Evaluating advance-issues-momentum on a fixed-symbol-basket
  32. 2004Constructing a trend filter from two adjacent high-low windows
  33. 2006A dollar-versus-commodity extreme as a regime case
  34. 2008Zero-centered stochastic bands and bracket stops
  35. 2012Evaluating engulfing momentum across hold windows
  36. 2012Staged stops as one mechanical entry and exit procedure
  37. 2012Stacking a relative-strength-index forecast, a trend filter, and long-only momentum
  38. 2013Constructing fair-value filters from averages and momentum
  39. 2014Constructing a multi-window slope divergence entry
  40. 2015Bandedge trend filter construction with inverse crossover rules
  41. 2017Opposite rules for index price and volatility momentum
  42. 2018A three-state overlay that colors a trend only after the line clears the bar
  43. 2018Half-cycle relative-strength index with a Fisher map for cyclic reversals
  44. 2018Emotion as a rule input when momentum breaks
  45. 2018Two-bar body expansion as a momentum breakout construction
  46. 2019Pair a two-day high breakout with a volume-weighted exit on the same chart
  47. 2020Building reflex and trendflex cross and extreme entry rules
  48. 2020Construct a dual-series price momentum oscillator overlay
  49. 2020A multi-timeframe stochastic as a panel of weekly voters
  50. 2020Centerline crossovers that compare index momentums
  51. 2020Multi-timeframe stochastic voting as one mechanical rule
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All 103 readings tagged Momentum strategy
Also on Momentum strategy5 readings
1989Cycle-length windows for momentum, Relative Strength Index, and stochastic construction1998Nested midpoint construction for a range-normalized oscillator1993Constructing double-smoothed range and momentum oscillators2008Zero-centered stochastic bands and bracket stops2020A multi-timeframe stochastic as a panel of weekly voters