danarm

RSI Correlation with future price

This script measures the correlation of the hourly RSI of 24 hours ago with the difference of price between now and the price 24 hours ago. In other words, this is an indicator which measures the predictive power of the RSI .

Green means that the price is strongly correlated with the past RSI (which is the normal state when the market is flat and there is no news).

Red means that the price is inversely correlated with the past RSI .

The hourly RSI is a leading indicator which enables you to (sort of) see into the future. It shows you how the current price is, compared to the price 24 (or 48) hours into the future.

If the RSI is low, it means the current price is low compared to the future price, and if the RSI is high, it means the current price is high compared to the future price.

So the hourly RSI really correlates (in the way I described) to the price 24 hours in the future.

Except when it doesn't!!!

What happens when the correlation breaks (RED on this indicator)? Usually there are important news - a strong signal external to the chart. There are either economy at large news, or security-specific news.

Following a strong break of this RSI-future price correlation, some cash can be made by understanding what happened and playing the restoration of the RSI-price correlation.
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