In the image below you can see the differences we can arrive to when comparing the regular version of the Relative Strength Index and this new study. What was once known to be OB or OS levels is actually the strength you need for breakouts, continuations, and larger movements.
Understanding the Dynamic Range In the image below we can see the contrarian differences from the old and new version of the RSI. For example the standard range in the common RSI is a 40 - 60 area. However through more analysis we can see the range is actually a level of 39.6 as a low of the range and a 49.2 as the high part. This meaning we dont need to wait to cross above the RSI midline to start looking for long trades.
Scalping or Range Trading Within the Dynamic Range In the image below we can see that using the new theory of the RSI, a range is created by the RSI entering down through the top of its previously created Range Bull Side. At the close of this candle we can determine this to be the top of the new range being created. As the RSI reaches a bottom of the new range within itself, we can also mark this value as the bottom of the price range. Once we drag this out forward, its easier to see when and were price will bounce off price levels. We keep these price values until a new cross of the rsi over its range is found. If only one side is crossed we keep the old price value of the alternate side.
Introduction: The Relative Strength Index (RSI) has long been a staple in the toolkit of traders, offering insights into overbought and oversold conditions in the market. Traditionally, traders have relied on static levels such as 30, 40, 50, 60, 70, and 80 to identify potential breakouts and reversals. However, a closer examination reveals that the RSI generates its own dynamic support and resistance levels, challenging the conventional wisdom that traders have adhered to for years.
Historical Perspective: Before delving into the dynamic nature of the RSI, let's take a brief look at the historical information provided to traders. The traditional approach involved identifying specific RSI levels (e.g., 70 for overbought and 30 for oversold) as key points for making trading decisions. This static framework has been the cornerstone of RSI-based strategies for years.
The Dynamic Nature of RSI: Contrary to popular belief, the RSI doesn't conform to fixed levels but rather establishes its own dynamic range. This range consists of a high part and a low part, both of which independently move within the oscillator. The intriguing aspect is that the high part can fluctuate irrespective of the position of the low part, leading to a constantly shifting dynamic range.
Understanding the Dynamic Range: The dynamic range of the RSI introduces a paradigm shift in how traders interpret the oscillator. Unlike the traditional notion of range trading confined between 40 and 60, the dynamic range expands and contracts, creating a continuously evolving landscape. The upper and lower extremes of this range determine the prevailing market sentiment—bullish or bearish.
Implications for Trading: Within this dynamic range, trading is not merely confined to buying at 40 and selling at 60. Instead, the goal is to identify the shifting bullish and bearish extremes. Breaking out of either extreme signifies a significant shift in market sentiment, eliminating resistance and presenting traders with clear opportunities to go long or short.
Trading Outside the Dynamic Range: In instances when the RSI ventures outside its dynamic range, a different set of trading principles comes into play. Trading the RSI as it crosses above or below its own moving average provides valuable insights into potential market reversals and continuations. For instance, when trading on the bullish side above the dynamic range's bullish extreme, a trader should focus on taking long positions when the RSI dips below its previous low and subsequently crosses above this level or its moving average. This suggests a continuation of the upward momentum in the price.
Conversely, in a bearish scenario below the dynamic range's bearish extreme, traders can look for opportunities to enter short positions. This involves waiting for the RSI to make a high swing, followed by a cross below its previous low swing or its moving average. These conditions signify a resumption of the downtrend without encountering significant resistance. Additionally, observing the RSI moving up above its moving average and then crossing back down across it can further confirm the continuation of the downtrend.
It's crucial to note that these conditions are most effective when the RSI is operating outside its dynamic range. This underscores the idea that the RSI is not merely overbought or oversold at specific levels but rather indicates pullbacks and shifts in market sentiment. By interpreting the RSI's movements in relation to its moving average outside the dynamic range, traders can enhance their ability to identify key reversal and continuation points, contributing to a more nuanced and effective trading strategy.
Scalping Within the Dynamic Range: Trading within the dynamic range involves scalping—capitalizing on short-term price fluctuations. The ever-changing nature of the range ensures that, even within the bounds of the oscillator, traders can engage in opportunistic long or short positions. This challenges the traditional notion that range trading is limited to a narrow band within the RSI.
Conclusion: As we reassess the conventional wisdom surrounding RSI trading, it becomes evident that the dynamic range of the oscillator provides a nuanced perspective on market dynamics. Traders can benefit from embracing the ever-shifting nature of the RSI, adapting strategies to capitalize on the changing sentiment within this dynamic range. By understanding and leveraging the true potential of the RSI, traders can navigate markets with greater precision and agility.
As a point of reference. this indicator DOES NOT have a MACD histogram built into it. THe histogram which i didnt speak of much is a histogram created by the RSI. It does NOT calculate like the MACD. The MACD calculates its histogram bars to show you the distance between the values of its macd and signal line. This histogram is giving you the average velocity and direction of momentum of the RSI. To this date i have not yet found another indicator like this here on Tradingview.
z28betz
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also this histogramm looks like a good helper in finding false bottoms and tops. sheeesh)))
z28betz
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i tried to use probably the same in old version of @heiken ashi rsi@ with rsi pivots, but visual perfomance based on automatically plotted pivot lines sometimes was making a little mess in my mind probably because of vertical rise and fall (even if it was drawn by dots) and its lag and my lack of patience in checking 3-4 additional candles, that were going outside pivot channel. Just because this new channel is much wider, it can prevent myself from focusing at many false range breakings that occur in actually good price ranges, giving me bad timing and wasting of attention. this was leading me in getting upset in a moment)) also it looks like preventing easily from waiting of reversal that is not going to happen
finally i decided to turn pivot lines off and was thinking that i will start to find and draw rsi ranges and rsi trendlines by myself, that i do with price candles. i then put my idea on pause after succesfully using it couple times also understanding that it is not working all the time and needs my intuition to draw proper trendlines and ranges on heiken rsi candles, while my goal is to reduce wasting vital intuitive energy. if i have less objective information to check with my feeling, it makes my setup more like i wished when first started using any indicator for trading. making wise setup for me is a goal for my logic-analisys part of my intellectual algo build that i treat serious. i never thought that you will find some additional part of rsi that i was interested in)) i also found any channelled rsi available here inTview lagging and bringing mess in my head, bc price action already was doing what indicator is not showing yet, but idea of proper channel always looked for me as potential
this new script looks MORE CONNECTED TO PRICE MOVEMENT without lag or with small lag, that is ok, bc during this lag price range is forming and giving classic new local high or new local low. all i got from the first try to understand is that you have here 3 confirmations that trader should look for and when it confirms, price action works the same direction. i dont know how white line and histo works here except showing a change in momentum and how you coded it but this looks like advanced type of longterm median line that i use in heiken algo pro with high values of RMA like 72 waving around zero level with confirmation of "RSI ross hook" for me. Can you add that RMA line in this script or i wont find any disadvantage for myself in lacking of that RMA72? im going to watch this video one or two times more
i wish you happy holidays eve ERIC and patiently waiting to try this new variant of your rsi... sorry for so many letters here))))
CoffeeshopCrypto
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@z28betz, the white line in this indicator is simply a point of control line. It is measuring the activity of the speed and change of price which is done by the RSI and it is also taking the movements of the RSI moving average and it doesn't matter what type of moving average you select for the RSI this white line will take into consideration that calculation as well. Once the white line has all the information that it needs it will begin plotting itself in a wavering manner either above or below the RSI moving average. In a sense you can think of this white line as the actual zero line instead of using the midline of the RSI oscillator. Anything happening above the line is for logs and anything happening below the line is for shorts. But in no way is it a median or a moving average of a moving average so don't worry about that and also it is not a very long length of a moving average.
ALso: I just completed further coding for this KillZone project. The histogram in the center which appears like a MACD (for visual purpose only since people are accustom to the way the MACD looks so its easier to understand) The #Histogram in the center is now a dynamic #orderflow oscillator WITHIN an oscillator. Its telling you in live time when people are Adding longs Adding Shorts Taking profits from longs Taking profits from shorts If price action is picking up bullish liquidity If price action is picking up bearish liquidity if buy stop-loss orders are being flushed out if sell stop-loss orders are being flushed out
Did i do enough here? Is the project done?
z28betz
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@CoffeeshopCrypto, hohoho you did what i made by compilation of two scripts: heiken rsi algo with that rma48\72 rsi average than i mentioned before + macz (less lag than macd). i can say that im almost speechless but my smile talks for myself
CoffeeshopCrypto
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@z28betz, dont be mistaken my friend there is no RMA calcaulation here there is no MACD calculation there is no MEDIAN calculation. The formula to create this monster is completely NEW code that i have develped. This is the difference between people who use other peoples code and combine indicators as opposed to people who actually write the algorithm :-!)
z28betz
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@CoffeeshopCrypto, can not fully understand how last two features work, but i am interested a lot
THe histogram which i didnt speak of much is a histogram created by the RSI.
It does NOT calculate like the MACD.
The MACD calculates its histogram bars to show you the distance between the values of its macd and signal line.
This histogram is giving you the average velocity and direction of momentum of the RSI. To this date i have not yet found another indicator like this here on Tradingview.