Random Walk Index (RWI)
The Random Walk Index (RWI) is used to determine if an issue is trending or in a random trading range by comparing it to a straight line. The more random the price movement, the more the RWI fluctuates.
The short-term (2 to 7 periods) RWI is an overbought/oversold indicator, while the long-term (8 to 64 periods) RWI is a trend indicator. An issue is trending higher if the RWI of the highs is greater than 1, while a downtrend is indicated if the RWI of the lows is greater than 1. A buy signal is generated when the long-term RWI of the highs is greater than 1 and the short-term RWI of the lows rises above 1. A sell signal is generated when the long-term RWI of the lows is greater than 1 and the short-term RWI of the highs rises above 1.
The Random Walk Index was developed by Michael Poulos and is described in his article in the February, 1991 issue of Technical Analysis of Stocks & Commodities magazine.
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