Thread by @KAnantrao

Relative Strength Index (RSI): An excellent work by J Welles Wilder often abused for wrong reasons:
The relative strength index was developed by J. Welles Wilder & published in 1978 book, New Concepts in Technical Trading Systems, & in Commodities magazine (now Futures magazine)

in the June 1978 issue.[1] It has become one of the most popular oscillator indices.Wilder believed that tops and bottoms are indicated when RSI goes above 70 or drops below 30.Traditionally, RSI readings greater than the 70 level are considered to be in overbought territory and

RSI readings lower than the 30 level are considered to be in oversold territory. In between the 30 and 70 level is considered neutral, with the 50 level a sign of no trend.

Wilder recommended a smoothing period of 14 days exponential.

In addition to Wilder's original theories of RSI interpretation, Andrew Cardwell has developed several new interpretations of RSI to help determine and confirm trend.
A variation called Cutler's RSI is based on a simple moving average of Upward & Downward change instead of the

exponential average above. Cutler had found that since Wilder used a smoothed moving average to calculate RSI, the value of Wilder's RSI depended upon where in the data file his calculations started.

Where is the problem?

When we fail to get desired results from an oscillator, we tend to pass the blame to it.
RSI is helpful in riding a trend & also in trading reversals through identification of bullish & bearish divergence.

What we forget?
RSI was introduced in 1978, when Dow Jones was trading

in a sideways bear market from 1966 which eventually ended around 1981-82 with the breakout above 1000 levels by Dow Jones. Thus its natural that an oscillator gave overbought/oversold indications at 70/30 levels & that worked well that time, given the lack of volatility which 1

witnesses today. Also another possible reason could be that USA is a developed market where volatility is lower compared to Emerging markets.
Wilder suggested using 14 Day time frame presumably on the concept of half lunar cycle. But we use 14 periods on time frames ranging from

1 min chart to Yearly chart without remembering 1 size can't fit all shapes. Who is at fault, certainly not Wilder?
Different assets classes, #indices, #financialmarkets , sectors & #stocks have a unique volatility (Historical) & thus an uniform value of 14 period wont deliver

the desired results in #investing or #trading. For this we can't blame #RSI or Wilder.
We try to capture both trended moves as well as trend reversals using the same oscillator RSI with standard value of 14.
For God sake, its an oscillator and not a potato which can blend with

every vegetable for the curry we make at home.
We try to blend RSI with candlestick, bar, line, P&F, Renko, Kagi, 3 Line Break, Heikin Ashi & even with Harmonics & Wyckoff without realising that the RSI was developed with Bar charts & though it blends well with all but

interpretation would vary in some degree or the other. A RSI bullish divergence on Bar chart vis-a-vis P&F chart will not be the same. Bar chart will use 14 Days whereas P&F will use 14 Columns and both arent same. On a higher % box & Higher # of reversal boxes 14 boxes can take

even 1-2 years of price action whereas the same may or may not be true in Bar chart.

RSI is like a cricket bat, who wields it, is important. Give the Bat to Sehwag & he may score a ton in 40 deliveries in a test match. The same bat in the hands of Dravid may see only 10 runs in

100 deliveries in a test match. Results will vary for a Sachin, Saurav, Azhar, Laxman, Gavaskar, Dhoni or a Virat. Bat remains the same. Who wields it and how good form he is in, on that day also matters.

So, if you are relatively new to Technical Analysis & using RSI on charts

Decide, whether you want to use it ride a trend or identify trend reversal via divergences. Sorry, mastering both takes a lot of time,application & failures.
Michael Bevan was one of best finishers in the history of ODI Cricket who never made it big in Test Cricket.

You may want to excel in both riding a trend as well as identifying trend reversals using divergences but start with one, give it 2-3 years to get used to & then move to the other side.
Consistent performance in ODI will ensure a Test Cap, but ODI performance wont matter.

Try to experiment & identify which period suits for say different sectors & stocks from Nifty Index. What periods are suitable for RSI on hourly, daily, weekly, monthly & quarterly time frames. Learn optimisation.
Rinse & repeat for any indicator/oscillator of your choice.

We have to adjust to the oscillator by way of experiments, tweaks etc. Oscillator wont adjust to us.
P.S. I dont use any indicator/oscillator on my charts for reasons beyond the scope of this discussions.
Hope you will find my thread useful.