Welcome to the RPI trading system thread!
The RPI (Relative Price Index) is an indicator I have created to trade market swings. It is the core of my system. Not because it’s some holy grail magic number generator that is essential the forex market’s Eye of Sauron, but because it is a simple way to measure the relative trend of the market.
Additionally, the RPI is not designed to give us entry and/or exit signals. It is designed to essentially be a flag you raise so you can see which direction the wind is blowing.
The calculation for the indicator is very simple. It is as follows:
RPI = (C - LL) / (HH - LL)
- C: Current/Close Price
- LL: Lowest Low of the Period Being Measured
- HH: Highest High of the Period Being Measured
The default period I use is 14. Because it’s magical? No. I use 14 because I initially started creating this indicator based off the general idea of how the RSI works but instead of measuring the average Rate of Change of the the last 14 bars, I wanted to measure the change in the time series as a whole to provide more contest.
With the RSI, the 14 period is the default because the distribution of it’s reading form a bell curve.
The distributions of returns on any one candle in the market also form a bell curve. However, the actual distribution of price over time is essentially a reverse bell curve. The distribution spends more time at the tails instead of hanging around the mean.
The goal was to create a modified version of the RSI that closer reflects the distribution of price over time.
Comparing the distributions of the RSI vs the RPI using the same period show that this model is a pretty good way of doing that. It’s not perfect, but it’s good enough.
Using RPI is simple. If the indicator is reading above 0.5, price is currently trading above the mean of the periods total range, therefore, we are looking to trade long. If the indicator is reading below 0.5, price trading below the mean of the periods total range so we are looking to trade short.
Again, the indicator is a flag you raise up so you can see which way the wind is blowing.
There is a lot more context we can draw about the marketing using this indicator and this will be covered in later posts, but for now, I would recommend using the indicator as described, getting used to how it moves with the market and finding a period that works for you.There is no magic number in terms of what period will work for you. It’s really about personal preference. I use 14.
Attached is the MQL4 source code for the indicator along with a link to the source code for the indicator on TradingView for those who use that platform.
If you have any questions, please post them below!
Trading View Source Code: https://www.tradingview.com/script/B5DA41bs-RPI-Relative-Price-Index/
MQL4 Source Code: cutt(dot)ly/JrVK8zW