Skip to main content
Track Relative Strength Index
14 / 26
Search the archiveLibrary
Library

2006issue C021

Constructing adaptive overbought and oversold levels for a relative strength index

The issue presented a relative strength index construction meant to make overbought and oversold levels more applicable when indicator parameters change. Editorial reading: treat those lines as adaptive thresholds that move with lookback and sampling interval, instead of reusing one fixed pair for every construction choice.

  • A relative strength index is a bounded oscillator built from ordered price observations over a defined lookback, used to mark stretch and mean-reversion conditions.
  • Lookback and sampling interval are indicator parameters that change the scale and timing of the oscillator.
  • Overbought and oversold levels stay comparable across those choices only when they are treated as adaptive thresholds and recalibrated with the construction.
  • A single pair of fixed bands should not be treated as valid for every parameter set.
Entries in this reading1 entry
Current trackRelative Strength Index261 readings

Gold conditions and a multi-session hold

A 2006 market note described a gold advance above 500 per troy ounce as unusual because bond yields stayed contained and inflation pressure was characterized as absent.

That same note listed a willingness to take risk and a firm US dollar as further departures from earlier gold advances. Demand from China and India was cited as a reason gold could remain at elevated prices.

A long holding from early November through a mid-December peak was used to illustrate that some price moves last longer than a single session.

The construction in the issue

The issue presented a relative strength index construction meant to make overbought and oversold levels more applicable when indicator parameters change.

Editorial: adaptive thresholds

Editorial interpretation: a relative strength index is a bounded oscillator built from ordered price observations over a defined lookback, used to mark stretch and mean-reversion conditions.

Lookback is the number of sampling intervals used to compute the oscillator. Sampling interval is the bar length on which the ordered observations are collected. Both are indicator parameters. Changing either one changes the scale and timing of the oscillator.

The overbought level is the upper threshold at which the oscillator is treated as extended to the upside. The oversold level is the lower threshold at which the oscillator is treated as extended to the downside. An adaptive threshold is an overbought or oversold line that is recalibrated when those construction choices change, so the same stretch test remains comparable.

Editorial interpretation: do not treat one pair of fixed bands as valid for every parameter set. Attach the bands to the chosen lookback and sampling interval, then move the lines when those choices change.

Companion pieces in the same issue

Companion pieces addressed stop placement with triangles and retracement levels and an algorithm for locating cup-with-handle formations.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
14 of 26 in the Relative Strength Index track
20061-5 pp.Next on Relative Strength IndexRelative Strength Index 50-line entry beyond the 70 and 30 extremesExtreme Relative Strength Index readings near 70 and 30 can appear after a strong directional move rather than at a completed reversal.
All readings on this track · 26 readings
  1. 1991Constructing the relative strength index from seed and recursive averages
  2. 1991Inverting relative-strength-index closes for same-session rules
  3. 1991Seeded averages and the recursive-update
  4. 1993Restating relative-strength-index parameters after a smoothing change
  5. 1993Relative momentum construction by stretching the relative strength lookback
  6. 1994Constructing relative strength index lookbacks, bands, and confirmation filters
  7. 1994Building the relative-strength-index from signed close changes
  8. 1997Constructing the relative strength index as a bounded up-down close oscillator
  9. 2002Four-line oscillator construction for rule-based entries
  10. 2004Assembling a bounded RSI path
  11. 2004Constructing RSI on highs, lows, and reverse targets
  12. 2004Reverse-engineered RSI as an explicit next-bar price target
  13. 2006Self-adjusting RSI thresholds from the oscillator's own spread
  14. 2006Constructing adaptive overbought and oversold levels for a relative strength index
  15. 2006Relative Strength Index 50-line entry beyond the 70 and 30 extremes
  16. 2007Lock a followable rule set before testing RSI exits
  17. 2008RSI bands as a one-day shift of reverse-engineered levels
  18. 2008Constructing an asymmetrical RSI from adaptive up and down averages
  19. 2010Building a bounded oscillator from a rainbow smoother, relative strength, and inverse Fisher
  20. 2011Two-horizon weekly RSI with moving averages and stops
  21. 2011Percent-offset simple moving average bands with relative-strength confirmation
  22. 2011Fast and slow relative strength index as one mechanical rule book
  23. 2011Price-zone oscillator construction from signed closes
  24. 2015Constructing a zero-lag oscillator against a relative strength index baseline
  25. 2015Relative Strength Index as a baseline in 2015 software listings
  26. 2018Building a Fisherized deviation-scaled oscillator
By fieldIndicators and filters874 readingsBy year2006150 readings
All 261 readings tagged Relative Strength Index
Also on Relative Strength Index5 readings
1985Session windows, volume weights, and divergence in RSI construction1986Constructing bounded relative-strength overlays from oscillator limits1987Constructing the commodity channel, average directional, and relative strength indexes on a shared cycle scale1987Constructing scaled OHLC matrices for study overlays1987Evaluating silver moving averages and RSI by scoring rule