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Financial Forecast For The Relative Strength Index

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Executive Summary

In this paper the authors provide a closed-form expression for one of the most popular index in Technical Analysis: the Relative Strength Index (RSI). Given that they show how the standard binomial model for the stock price can be used to predict RSI. The algorithm is as simple as to code a standard European option. In an empirical application to the Chilean exchange rate they show how the method works having a better out of sample performance than an ARMA(1,1) model.

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