Type: Technical Research Paper / Market Analysis Main Topic: Systematically debunking the traditional "reversal" use of the Relative Strength Index (RSI) and proving its efficacy as a powerful trendfollowing and momentumconfirming tool. Speaker/Author: Arthur Hill, CMT (Chief Technical Strategist, TrendInvestorPro.com) The goal of this research is to challenge a fundamental misconception in financial markets: that high RSI means a security is "overbought" and due for a reversal. Through rigorous backtesting of S&P 500 stocks over a 20year period (1998–2018), Arthur Hill seeks to prove that RSI is best utilized by quantifying trend consistency (RSI ranges) and trend strength (RSI momentum). The ultimate objective is to develop a mathematically sound investing strategy that combines these two elements to predict sizable market advances. The True Nature of RSI: RSI is a natural trend indicator based on the ratio of Average Gain to Average Loss. A sustained RSI above 50 means Average Gain Average Loss. RSI Bull Range: A measure of trend consistency. During a normal uptrend pullback, an asset's RSI should not drop below 40. The range is defined as RSI fluctuating strictly between 40 and 100. RSI Bull Momentum: A measure of trend strength. Occurs when the RSI regularly exceeds 70. Testing Parameters: Asset Universe: All constituents of the S&P 500 (adjusted for survivorship bias). Timeframe: July 1, 1998, to July 2, 2018 (20 years, capturing 4 major market cycles). Base Indicator: 14day RSI. Lookback Periods: 25, 50, 75, 100, and 125 trading days. Figure 1: The three RSI zones that define trend consistency and momentum strength. The Bull Range (40–70) filters stagnation while the Elite Threshold (70) confirms institutional buying power. The "Elite" 70 Level: Over a 20year period, RSI exceeded 70 only 6.3% of the time. It is a rare indicator of exceptional upside momentum, not merely a standard "overbought" signal. The S&P 500 Upward Bias:
Loading analysis...