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2003issue C071

Scoring open versus resolved relative strength divergences

A standard 14-period relative strength index is a 0-to-100 line built from the RS ratio and read against price. This archive case keeps every price-indicator divergence under one editorial drill: label the disagreement as already confirmed by a later swing, or still open.

  • A standard relative strength index maps a 14-period RS ratio of average up-closes to average down-closes onto a 0-to-100 scale.
  • The same line is also used to mark extremes, confirm chart patterns, read failure swings, locate support and resistance, and spot divergences versus price.
  • A first-half 2003 S&P 500 example showed a February-to-March positive divergence that later resolved higher, and a later negative divergence that was still open.
  • Editorial reading: score each disagreement as already confirmed by a later swing or still open, and keep both labels inside the same falsifiable rule set.
Entries in this reading2 entries
Relative Strength Index14 readingsCurrent trackPrice-indicator divergence19 readings

The same 0-to-100 line

A relative strength index is a 0-to-100 oscillator built from the RS ratio. That ratio is the lookback average of up-closes divided by the lookback average of down-closes, then rescaled into the oscillator. A standard reading uses a 14-period lookback.

Daily oscillator values are connected into a continuous line that is read against the corresponding price chart. The same oscillator is described as useful for marking extremes, confirming chart patterns, reading failure swings, locating support and resistance, and spotting divergences versus price.

A failure swing is an oscillator reversal reading grouped with those other uses as another way to interpret the same line.

Two directions of disagreement

A price-indicator divergence is a chart condition in which successive highs or lows in the oscillator move opposite the corresponding highs or lows in price.

A positive divergence is defined as the oscillator pointing toward firmer price action while the price series itself continues to decline. In the wording fixed for this archive, that is a disagreement in which the oscillator forms a higher low while price continues to form lower lows.

A negative divergence is defined as the oscillator making lower highs while price continues to make higher highs.

One resolved case and one open case

On a first-half 2003 S&P 500 chart, the oscillator made a higher low from early February into early March while the index made lower lows. That February-to-March disagreement was later followed by an upside resolution in the index in mid-March.

From mid-March into May 2003 the same S&P 500 example showed higher price highs against lower oscillator highs, and that disagreement was still unresolved at the time of writing.

Daily 14-period RSI on the S&P 500, November 2002 to May 2003

A trader can mark the early-March RSI trough as a higher low against cheaper S&P 500 prints — that bullish split was later confirmed by the mid-March upside burst — and then mark the March-to-May RSI peaks as a lower-high sequence against a rising cash index, which the source still treated as unresolved. The 14-period line was read off Figure 1’s lower pane; 57.36, 30 and 70 are the printed guides, and the other RSI vertices are approximate.
A trader can mark the early-March RSI trough as a higher low against cheaper S&P 500 prints — that bullish split was later confirmed by the mid-March upside burst — and then mark the March-to-May RSI peaks as a lower-high sequence against a rising cash index, which the source still treated as unresolved. The 14-period line was read off Figure 1’s lower pane; 57.36, 30 and 70 are the printed guides, and the other RSI vertices are approximate.S&P 500 · Daily · 2002-11-01T00:00:00.000Z to 2003-05-29T00:00:00.000Z

Fourteen-period RSI as plotted on the TradeStation daily pane. Session dates are inferred from the month axis, not printed timestamps. Apart from the printed 57.36 close and the 30/70 guides, levels are raster readings rounded to whole index points.

An editorial classroom drill

Editorial interpretation: treat the 14-period overlay as a classroom drill. Label each price-oscillator disagreement as already confirmed by a later swing, or still open. The mid-March upside move lets the first disagreement be labelled confirmed. The later disagreement stays labelled open because it was still unresolved in the same record.

Both labels stay inside one falsifiable rule set. The archive does not assign those classroom labels.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
14 of 16 in the Price-indicator divergence track
20031-10 pp.Next on Price-indicator divergenceBull-and-bear-balance from OHLC bar patternsSame-bar bull-power and bear-power are inferred from the relationships among the previous close and the current open, high, low, and close rather than from a single fixed formula.
All readings on this track · 16 readings
  1. 1989Volume confirmation windows and exponential average construction
  2. 1990Constructing stochastic %K and %D from range position
  3. 1990Build a weekly leading sector composite from scaled transports and financials
  4. 1990Constructing stochastic K and D lines and divergence cues
  5. 1993Relative strength index events depend on the chosen input combination
  6. 1995Constructing a dual-horizon force index
  7. 1996Building a range-normalized divergence index from relative strength index
  8. 1998Treat RSI as a testable filter rather than a trigger
  9. 1999Primary-cycle windows, then stochastic confirmation
  10. 1999Stochastic rules versus buy and hold
  11. 2001Constructing confirmation filters for RSI overbought and oversold extremes
  12. 2003Constructing divergence-equivalent relative strength index and stochastic oscillators
  13. 2003Reverse-engineered RSI as a next-close projection
  14. 2003Scoring open versus resolved relative strength divergences
  15. 2003Bull-and-bear-balance from OHLC bar patterns
  16. 2003Constructing bull and bear balance from session paths
By fieldIndicators and filters56 readingsBy year200311 readings
All 19 readings tagged Price-indicator divergence
Also on Price-indicator divergence5 readings
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