Developed by Tushar Chande, the Intraday Momentum Index (IMI) is a cross-breed between the RSI and candlestick analysis.
The calculation of the IMI is very similar to the RSI, except it uses the relationship between the intraday opening and closing prices to determine whether the day is “up” or “down.” If the close is above the open, it is an up day. If the close is below the open it is a down day. Therein lies its tie to candlestick charting. For those familiar with candlestick charting, the IMI separates the black and white candlesticks and performs a RSI calculation on the candlestick bodies.
Application in Stock market
Overbought/oversold: Index values above 70 indicate a potential overbought situation with lower prices ahead. Values below 30 indicate a potential oversold situation with higher prices ahead. As with all overbought/oversold indicators, you should first quantify the trendiness of the market before acting on the signals. Indicators like the VHF, CMO, and r-squared can be used to gauge the trendiness of the market.
Divergences: The basic premise behind the IMI, is that shifts in intraday momentum lead shifts in interday momentum. Look for divergences between the indicator and the price action. If the price trends higher (lower) and the IMI trends lower (higher), then a reversal may be imminent.
Formula
