Relative Momentum Index (RMI)

The Relative Momentum Index (RMI) as it is known, is another variation on the RSI.

In the calculation of the Relative Momentum Index (RMI), the standard RSI formula is modified to allow for a momentum factor.

This modification has two effects. First, it smooth the indicator and, second, it accentuates the degree of the fluctuation. The result is a less jagged oscillator that experiences more overbought and oversold readings. The Relative Momentum Index (RMI) requires two parameters: the time frame and the momentum factor.

If the Relative Momentum Index (RMI) has a momentum factor of 1, the indicator is identical to the RSI. It is only when the momentum factor is greater than 1 that the two series diverge.

Since Relative Momentum Index (RMI) is an RSI-based indicator, longer-term spans involve less volatility. Note that the fluctuations in the 45­day series are much less pronounced than the 14-day Relative Momentum Index (RMI).

Generally speaking, the longer-term span offers slower and more deliberate movements that lend themselves more easily to trendline construction. Whenever a price crosses above a trendline and a reliable MA at the same time, it emphasizes the strength of the signal since they reinforce each other as dynamic resistance areas.

Most of the time, the RSI and its two variations (CMO and RMI), like all oscillators, do not tell us very much. The RSI can be really useful when it triggers divergences, completes price patterns, or violates trendlines. When such an occurrence is also confirmed by a trend-reversal signal in the price itself, it is usually a wise policy to pay attention, because the RSI has a good record of reliability.