Relative Momentum Index

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 sought to improve the Relative Strength Index, as he found its oscillations between overbought and oversold levels sometimes contradictory. With the "Relative Momentum Index", R. Altman adds a momentum component to the RSI.

Instead of counting day-by-day closing price variations for up days and down days as the RSI does, the "Relative Momentum Index" counts closing price variations between today and N days ago. Thus, as the name of the indicator suggests, "momentum" is substituted for "strength".

Calculation Method

RMI = 100 * H / (H + L)

where:

• N: the gap in days (to calculate price variations)
• H: the sum of closing price variations over the period between the current day and N days ago, when the price variation is positive
• L: the sum of closing price variations over the period between the current day and N days ago, when the price variation is negative

Note: in the RSI, the gap N is systematically equal to 1 day.

Like the RSI, the RMI is bounded and varies between 0 and 100.

Example

Interpretation

The interpretation of the "Relative Momentum Index" is very comparable to that of the RSI. However, many situations are actually better reflected with the RMI.

1. Peaks and Troughs: The RMI forms a peak above 70 and a trough below 70. It usually reaches these extremes before the prices do.
2. Chart Patterns: Often, the RMI forms chart patterns (such as "head and shoulders" or "wedges") that are not visible on the price chart.
3. Supports and Resistances: The RMI sometimes shows support and resistance levels more clearly than the price chart.
4. Divergences: this occurs when prices make a new high (or low) that is not confirmed by a new RMI high (or low).