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When I put a 5 period RSI on my weekly chart it does not look like the 5 week RSI line in your article in July 2003 Shares magazine, why?

When I put a 5 period RSI on my weekly chart it does not look like the 5 week RSI line in your article in July 2003 Shares magazine, why?

I think the reason lies in the way different charting software packages deal with data.

In Insight Trader, there is a clear distinction between the display and the data.

So, we can have daily data displayed as a daily bar chart, a weekly bar chart or a monthly bar chart.

We can then compress the data file into a weekly format where we have for each week its open, high, low and close, not five sets of data that was in the daily data. This can be displayed as a weekly bar chart or a monthly bar chart. However, it can not be displayed as a daily bar chart, because the daily data is now compressed.

Likewise, we can compress the data file into a monthly format where we have for each month, its open, high, low and close, rather than the previous 4 or 5 weeks or 20 to 23 days. Only a monthly bar chart can be drawn from a file compressed to monthly format.

The importance of this is that RSI is plotted using the closing prices. If we use daily format data, then a 5 period RSI will use the Monday, Tuesday, Wednesday, Thursday and Friday closing prices.

However, if we use weekly format data, then a 5 period RSI will use for example the closing price for the week ending Friday the 1st, the 8th, the 15th, the 22nd and the 28th of the month.

Now, you might think that we could use daily format data and use 25 days to emulate the 5 week RSI. In fact you can, but because there are now 25 data points, the line is much flatter and harder to read. However, it will have the same basic character. The other problem is that you will tend to get a lot of misleading upturns in the RSI - it is difficult except in hindsight to know which were the important upturns.

You can also use daily data for 5 periods and in very rough terms the upturns from below the 30 level will tend to correspond with the 5 week RSI upturns. However, there will be missed signals where the 30 line was not reached.

The real solution for you is to use something else as a tool, or find out how to compress the data in your charting package to weekly format.

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