2006issue C021-7
Self-adjusting RSI thresholds from the oscillator's own spread
A standard RSI of closing prices can replace fixed overbought and oversold lines with bands centered at 50 whose width follows the oscillator's recent spread. Two dispersion methods set that width, a conformance check then asks whether most readings stay inside, and a sample rule trades band crosses on the next bar.
- Replace fixed RSI overbought and oversold lines with an adjustable benchmark centered at 50 and scaled from the oscillator's recent spread.
- Choose a dispersion method that sets width from either the standard deviation of the RSI or a moving average of its absolute deviation from its own average.
- After a warmup window of three lookback lengths, a conformance check compares the share of readings inside the bands with target bounds of 70 and 80.
- A sample rule trades crosses of the adaptive bands with orders on the next bar. The construction does not search for a multiplier that meets the containment target.
Start from a standard RSI
A self-adjusting RSI begins as a standard Relative Strength Index of closing prices. The fixed overbought and oversold lines are then replaced with an adjustable benchmark: a pair of thresholds centered at the RSI midpoint of 50 and widened or narrowed by a chosen multiple of recent RSI dispersion.
Each threshold equals 50 plus or minus a constant times a width taken from the oscillator itself. The lookback used to measure that width is the same lookback used for the RSI.
Two ways to set the width
A dispersion method turns recent RSI readings into that width. One rule sets each threshold equal to 50 plus or minus a constant times the standard deviation of the RSI over the same lookback used for the oscillator.
A second rule sets each threshold equal to 50 plus or minus a constant times a simple moving average of the absolute deviation of the RSI from its own moving average.
Check whether the bands contain most readings
A conformance check asks whether a chosen multiple keeps most RSI readings inside the band. After a warmup window of three lookback lengths, a companion percent-inside count records how often the RSI sits between the adaptive thresholds and compares that share with target bounds of 70 and 80. Plots and signals are not treated as fully initialized until that warmup window has elapsed.
The supplied code does not itself search for a multiplier that forces the 70 to 80 containment target. That target is monitored separately after the bands are built.
A sample next-bar signal
A sample signal rule buys when the RSI crosses up through the lower adaptive band and sells short or exits when the RSI crosses down through the upper adaptive band. Orders are placed on the next bar.
Worked implementations reuse the same construction with different default lookbacks and multipliers. Those defaults include a 14-period RSI and a 50-period RSI with a multiplier of 2.
All readings on this track · 26 readings
- 1991Constructing the relative strength index from seed and recursive averages
- 1991Inverting relative-strength-index closes for same-session rules
- 1991Seeded averages and the recursive-update
- 1993Restating relative-strength-index parameters after a smoothing change
- 1993Relative momentum construction by stretching the relative strength lookback
- 1994Constructing relative strength index lookbacks, bands, and confirmation filters
- 1994Building the relative-strength-index from signed close changes
- 1997Constructing the relative strength index as a bounded up-down close oscillator
- 2002Four-line oscillator construction for rule-based entries
- 2004Assembling a bounded RSI path
- 2004Constructing RSI on highs, lows, and reverse targets
- 2004Reverse-engineered RSI as an explicit next-bar price target
- 2006Self-adjusting RSI thresholds from the oscillator's own spread
- 2006Constructing adaptive overbought and oversold levels for a relative strength index
- 2006Relative Strength Index 50-line entry beyond the 70 and 30 extremes
- 2007Lock a followable rule set before testing RSI exits
- 2008RSI bands as a one-day shift of reverse-engineered levels
- 2008Constructing an asymmetrical RSI from adaptive up and down averages
- 2010Building a bounded oscillator from a rainbow smoother, relative strength, and inverse Fisher
- 2011Two-horizon weekly RSI with moving averages and stops
- 2011Percent-offset simple moving average bands with relative-strength confirmation
- 2011Fast and slow relative strength index as one mechanical rule book
- 2011Price-zone oscillator construction from signed closes
- 2015Constructing a zero-lag oscillator against a relative strength index baseline
- 2015Relative Strength Index as a baseline in 2015 software listings
- 2018Building a Fisherized deviation-scaled oscillator