The Relative Momentum Index (or RMI) is an indicator developed by Roger Altman and presented in February 1993 in the magazine Technical Analysis of Stocks & Commodities. R. Altman has sought to improve the Relative Strength Index it is the oscillations between the levels of overbought and oversold sometimes contradictory. With the "Relative Momentum Index, R. Altman adds a component of momentum to the RSI.
Instead of accounting daily closing price variations on the one hand for rising day and for the days of decline like the RSI, the Relative Momentum Index accounts fluctuations of closing price between the day and N days before. Thus, as the indicator's name mentioned, a "momentum" is substituted for "strength"
Calculation
RMI = 100 * H / (H + B) where
• N = the difference in days (for calculating the change in price)
• H is the sum of changes in closing prices over the period between the day in question and N days ago, when this price change is positive
• B = the sum of changes in closing prices over the period between the day in question and N days ago, when this price change is negative
Note: in the RSI, the difference N is always equal to 1 day.
Like the RSI, RMI is limited and varies between 0 and 100.
Example
Interpretation
The interpretation of "Relative Momentum Index is very similar to the RSI. But in fact, many situations are well exposed with the RMI.
1. Peaks and troughs: The RMI forms a peak over 70 and a dip below 70. It usually reaches these extremes before the price.
2. Chart patterns: Often, The RMI forms chart patterns (such as "head and shoulders" or "bevels") that are not visible on the price’ chart
3. Supports and Resistances: The RMI shows sometimes more clearly current levels of support and resistance than the price.
4. Divergences: this occurs when the price make a new higher (or lower) which is not confirmed by a new top of the RMI.
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