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Relative momentum index is an oscillator introduced by Roger Altman in a February 1993 'Stocks & Commodities' magazine article. Inspired from the relative strength index, it attempts to improve it by eliminating the oscillations between defined overbought and oversold levels through the introduction of a momentum. The relative momentum index is used to interpret trending markets as well as ranging ones. Indeed, for trending markets, its value stays at overbought levels (70 to 90) or at oversold ones (10 to 30) for a long period; while for ranging markets, its value fluctuates between these levels. RMI is also used to detect failure swings; this occurs when its value surpasses a previous high or falls below a previous low.
RMI divergence is a strong indicator of the near end of a trend. When prices continue to rise while this is not confirmed by a new RMI high, it is a sign that the market is overbought and that the bulls are losing power, traders must therefore exit their positions and go short preparing for a change in the security price direction. The same reasoning is valid for an oversold market.
This RMI function first calculates the close price momentum over a chosen period; it takes that period as argument.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
