Calculation Methodology & Technical Indicator Math | EquityWise

1. Deterministic Pure Functions

Every indicator in our calculation engine lives inside a dedicated pure module. Functions accept an immutable series of input bars and parameter configurations and return calculated values. They contain:

No database queries or side effects
No network calls
No non-deterministic operations (e.g. Date.now())
No hidden lookahead parameters

This guarantees that the indicators evaluated in historic backtests are mathematically identical to those computed at market close.

2. Relative Strength Index (RSI 14)

Our 14-period RSI strictly adheres to J. Welles Wilder Jr.'s original smoothing methodology rather than the simplified moving average approximations seen in some charting libraries.

Change = Close[t] - Close[t-1]

Gain = max(Change, 0), Loss = max(-Change, 0)

AvgGain[t] = (AvgGain[t-1] * 13 + Gain[t]) / 14

AvgLoss[t] = (AvgLoss[t-1] * 13 + Loss[t]) / 14

RS = AvgGain / AvgLoss

RSI = 100 - (100 / (1 + RS))

Warm-up Period: Requires at least 15 bars for an initial seed value, and stabilization occurs asymptotically after 100+ sessions.

3. Exponential Moving Averages (EMA)

We track 20, 50, and 200-session EMAs. The weighting multiplier (α) applied to the closing price is:

α = 2 / (Period + 1)

EMA[t] = Close[t] * α + EMA[t-1] * (1 - α)

Seed value is initialized via a Simple Moving Average (SMA) over the initial window of length Period.

4. Moving Average Convergence Divergence (MACD)

Standard 12/26/9 configuration:

MACD Line = EMA(12) - EMA(26)

Signal Line = EMA(9, MACD Line)

Histogram = MACD Line - Signal Line

5. Corporate Action Invariant & Read-Time Adjustments

Raw price history stored in the database is never mutated (an append-only database trigger enforces this rule). When a stock undergoes a corporate action:

A row is recorded in corporate_actions with the exDate and exact numeric ratio (e.g. a 1:5 split carries ratio = 0.2).
Every candle prior to exDate is multiplied by the cumulative adjustment ratio on read.
Volume scales inversely (divided by ratio) to preserve true liquidity equivalence.
Adjusted prices are rounded back to the nearest integer paise (never float).