Momentum

Introduction The Relative Strength Index (RSI) is one of the most widely used momentum oscillators in technical analysis. As a standalone signal generator, however, it suffers from a chronic problem: in low-volatility, mean-reverting markets, RSI oscillates frequently around its midpoint, producing a stream of false breakout signals that accumulate losses through transaction costs and adverse fills. The ATR-filtered RSI breakout strategy addresses this deficiency by requiring that market volatility, as measured by the Average True Range (ATR), exceed its recent average before any RSI signal is acted upon. The intuition is straightforward: breakouts that occur in low-volatility environments are likely to be noise, while breakouts accompanied by expanding volatility carry a higher probability of persistence. ...