Random Walk Index - Technical Analysis Indicator

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Random Walk about Forefinger Definition

The haphazard walk indicator (RWI) is a technical indicator that attempts to determine if a pedigree's price movement is hit-or-miss or nature Beaver State a leave of a statistically significant drift. The random walk index attempts to determine when the market is in a strong uptrend or downtrend by measuring price ranges over N and how it differs from what would be expected by a random walk (randomly going up or down). The greater the straddle suggests a stronger trend. The RWI states that the shortest space 'tween two points is a straight line and the further prices vagabon from a straight line, implies the market is choppy and random in nature.

Unselected Walkway Indicator Formula

The ergodic walk index determines if a security is in an uptrend or downtrend. For each catamenia the RWI is computed by calculating the maximum of the following values for high periods:

(HI – LO.n) / (ATR.1(n) * SQRT(n))

For each historical period the RWI is computed by calculating the maximum of the favorable values for low periods:

(HI.n – LO) / (ATR.1(n) * SQRT(n))

Trading with the Random Walk Index number

Michael Poulos the creator of the RWI, unconcealed during his research that it was best optimized for 2 to 7 periods for half-length-term trading and 8 to 64 periods for long-term trading. Readings of the long-term RWI of highs that exceed 1 provides a beatific meter reading of a sustainable uptrend. Conversely, a long-term RWI of lows above 1 render a good indication of a property downtrend. Poulous realized that by combining the fleeting-term RWI with the protracted-term RWI in a trading scheme, it could provide straight buy and trade points. Down the stairs are some rules developed by Poulos for trading stocks and futures with his RWI:

Enter a long (or close short) when the long-term RWI of the highs is greater than 1 and the short-condition RWI of lows peaks above 1
Enter close (OR close long) when the long-term RWI of the lows is greater than 1 and the short-term RWI of highs peaks above 1