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Relative Momentum Index
Description
The Relative Momentum Index (RMI) was developed by Roger
Altman. Impressed with the Relative Strength Index's sensitivity to
the number of look-back periods, yet frustrated with it's
inconsistent oscillation between defined overbought and oversold
levels, Mr. Altman added a momentum component to the RSI. The RMI
was first introduced in the February 1993 issue of Technical
Analysis of Stocks & Commodities magazine.
As mentioned, the RMI is a variation of the RSI indicator. Instead
of counting up and down days from close to close as the RSI does,
the RMI counts up and down days from the close relative to the close
x-days ago (where x is not necessarily 1 as required by the RSI). So
as the name of the indicator reflects, "momentum" is substituted for
"strength."
Interpretation
As an oscillator, the RMI exhibits the same strengths and weaknesses
of other overbought / oversold indicators. During strong trending
markets the RMI will remain at overbought or oversold levels for an
extended period. However, during non-trending markets, the RMI tends
to oscillate predictably between an overbought level of 70 to 90 and
an oversold level of 10 to 30.
Since the RMI is based on the RSI, many of the same interpretation
methods can be applied. In fact, many of these "situations" are more
clearly manifest with the RMI than they are with the RSI.
- Tops and Bottoms: The RMI usually tops above 70 and
bottoms below 30. The RMI usually forms these tops and bottoms
before the underlying price chart.
- Chart Formations: The RMI often forms chart patterns
(such as head and shoulders or rising wedges) that may or may
not be visible on the price chart.
- Failure Swings: (Also known as support or resistance
penetrations or breakouts.) This is where the RMI surpasses a
previous high (peak) or falls below a recent low (trough).
- Support and Resistance: The RMI shows, sometimes more
clearly than the price chart, levels of support and resistance.
- Divergence: As discussed above, this occurs when the
price makes a new high (or low) that is not confirmed by a new
RMI high (or low).
Note that a 20,1 parameter RMI is equivalent to a 20-period RSI.
This is because the 1-day momentum parameter is calculating
day-to-day price changes, which the standard RSI does by default. As
the momentum parameter is increased, the oscillation range of the
RMI becomes wider and the fluctuations become smoother.
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