The relative momentum indicator (RMI) is our most valuable indicator – for several reasons:

1. We use the RMI to locate our short term support and resistance values (SRVs) – this use alone would make the RMI our most valuable indicator.

2. We use the RMI to predict near term price direction.

3. We use the RMI to estimate the strength of the current price movement.

4. We use the RMI to help us predict a possible change in price direction.

5. We use the RMI to manage our trailing stops while trading.

6. We use the RMI to predict a future price direction that is looming but not imminent.

I would be happy to take credit for the creation of this very powerful indicator, but I learned how to create it and use it from a master trader with whom I had the pleasure of working many years ago. James Barnet traded the S&P so effectively that the top executives of his brokerage, I believe it was REFCO at the time, called him frequently – sometimes several times in a day – for his opinion on the support and resistance levels for the S&P.

Price oscillates up and down – while trending in some direction. These oscillations are often from a support or resistance value to another support of resistance value. The short term trader who can determine with the greatest accuracy the support or resistance value (SRV) that is most likely to turn price is in a better position to make a profitable trade.

Such SRVs – when placed on the chart as horizontal lines – provide the savvy trader with a virtual trading guide. Entry price, stop loss price and target price can all be visually computed in an instant. I like to think of it as a means of cherry picking trades.

My trading method, Trading Between the Lines (TBL) is built around this concept. All trading methods are based on probability – there are never any absolute sure things. The successful trader is the one who takes the most potentially profitable trades the highest percentage of times they trade.

We have been trading for many years and have never seen a better method of selecting high probability of profit short term trades than TBL.

The RMI is composed of two custom oscillators which are plotted over the price bars. These oscillators are fine tuned for our particular method of short term trading. The RMI is available from TradeStation Development App Store for a very nominal fee.

We would be willing to create this indicator in other software capable systems if the need became sufficient. Unfortunately many free and inexpensive charting programs cannot accommodate the requirements for creating and plotting the RMI.

Because the two oscillators making up the RMI are interpreted by their current relative position and directional movement as compared to that of price, they must be plotted over the price bars – and without axis value – which allows the oscillators to range from the very bottom of the price chart to the very top of the price chart over the number of bars displayed in that chart. This requirement is essential and the reason many charting programs cannot accommodate the RMI.

 

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