January 2020
Beginner to intermediate
432 pages
11h 24m
English
Content preview from Python for Finance Cookbook
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Calculating the relative strength index and testing a long/short strategy
The RSI is an indicator that uses the closing prices of an asset to identify oversold/overbought conditions. Most commonly, the RSI is calculated using a 14-day period, and it is measured on a scale from 0 to 100 (it is an oscillator). Traders usually buy an asset when it is oversold (if the RSI is below 30), and sell when it is overbought (if the RSI is above 70). More extreme high/low levels, such as 80-20, are used less frequently and, at the same time, imply stronger momentum.
In this recipe, we build a trading strategy with the following rules:
- We can go long and short.
- For calculating the RSI, we use 14 periods (trading days).
- Enter a long position if the RSI ...
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