Abstract

The relative strength index (RSI) is one of the best known and most widely used technical analysis indicators. In this paper, the study aims to empirically test the functioning of the RSI in its classic form, on a set of data and to reconfigure the indicator by also taking account of the trading volume in its calculation formula. After adjusting the RSI with the trading volume, the study will test its new form on the same set of data. Finally, it will compare the obtained results by applying the classic form of the indicator with those obtained by using the adjusted form. In future research, the study intend to analyse whether higher yields can be obtained by using the RSI compared to those which result from applying the buy and hold strategy.

Key words: Technical analysis, fundamental analysis, technical indicators, stock market, financial forecasting, S&P 500 (Standard & Poor’s 500) index.