Welcome, Readers,
Today’s article has been a while in the making. I’ve wanted
to do a piece on the oscillators I use for two main reasons, both selfish.
First, while I understand them well enough to spot the tell-tale signs required
to enter and exit a trade, I do not understand them on the depth necessary to
help guide my Elliott Wave interpretations. Second, after spending a bit of
time in the market I have been trying to find time to sit down and reread
several chapters from Connie Brown’s books to refresh myself on some of the
more nuanced details about signals in the Composite Index compared to the RSI.
For today’s discussion I am going to focus solely on the
14-period relative strength index (RSI) and Connie’s Composite Index indicator.
I have some exposure to the 7-period detrended oscillator, but I want to gain
more practice and confidence before attempting to write an educational piece on
its use. Right now, I would say that the signals gained from the RSI and
Composite Index compose 99% of my trading entries and exits. So, they’re
certainly worth the focus. Before we begin, I want to give a little background
on both oscillators.
The Relative Strength Index or RSI was developed by Wells
Wilder and is used to measure the average number of bars that close up versus
the average number of bars that close down within a set number period. For
example, the 14-period RSI on a daily chart will measure the average number of
up days versus down days across the last 14-days and normalizes that ratio
between 0 and 100. For the RSI to develop a value of 0 or 100, the index or
stock in question would need to close down 14 days in a row or up 14 days in a
row, respectively. The important thing to remember about using a normalized
indicator is that the range the oscillator is allowed to travel within is
bounded. In other words, the maximum displacement the indicator can ever
provide is 0 or 100. In strongly trending markets, such oscillators are known
to “lock up”. If you’ve ever used Stochastics or MSI on a trending day you’ll
know what I mean. Why do bounded oscillators do this? Imagine you are on a golf
course and you want to hit the ball into the hole. However, every time you hit
the ball it moves exactly half the remaining distance to the
hole. You’ll never get the ball into the hole no matter how hard you try. Even if
you are mere millimeters away from the hole, the next tap will only move it
halfway there. This is the problem with normalized oscillators, it doesn’t
matter how strong the trend is, they will always stuck between 0 and 100.
To alleviate this condition, if you wish to take true
trading signals from oscillators alone, it is advised that you pair your
normalized oscillator with one that is unbounded (also known as detrended).
This means you’ll have a second oscillator on your screen that is allowed to
move beyond 0 or 100. In fact, it will move however far is necessary to ensure
it tracks with the price action. The Composite Index is used to solve this
issue as my unbounded oscillator of choice. The Composite Index was developed
by Constance Brown back when she worked with Manning Stoller as she began her
trading career in the World Trade Center. The story behind its development is
interesting as it came to fruition through a need to introduce additional
indicators to a computer screen when there was limited space and windows could
not be resized. The solution? Embed one indicator within another. In this case,
Connie embedded a momentum indicator within an RSI formula. The formula itself
can be found at the following link if you wish to use it (scroll to the bottom
it is a free PDF for download).
https://aeroinvest.com/seminars.htm
I will include the code I use for my composite index in the
Tradingview platform at the end of the article. It is the same as Connie’s, I
just have custom colors and crossover symbols coded into it that can be turned
on or off as desired. The oscillator itself solved a very important issue at
the time of its creation. On occasion, the RSI is known to not diverge with
price, giving no warning that a change in trend is on the horizon. The
Composite Index, will frequently diverge with RSI and/or price when inflection
points in the market are on the horizon. Therefore, comparing the signals that
form between the two indicators can provide depth an insight into critical
moments in the price action. To do understand these signals though we will need
to look at each indicator separately.
14-Period RSI
The RSI has a unique
attribute that is only found when using the 14-period version of the
oscillator. Thankfully this is the standard period length most often used in
charting software. This unique quality is that in a trending bull market, the
RSI will find support between the 40-50 zone and resistance between the 70-80
zone. Connie’s original text in “Technical Analysis for the Trading
Professional” states that the resistance zone is 80-90, but I have found 70-80 to
be a more common range in today’s markets. In a trending bear market, the
oscillator will find support for the signals it develops in the 20-30 range and
resistance in the 55-65 range. These are the values given by Connie in her book,
but don’t be afraid to make adjustments for specific markets. I’ve coded a
version of the RSI that displays adjustable bull/bear support/resistance bands
on the indicator represented by blue and orange dashed lines, respectively. In
my opinion it helps to see the trend as it develops. An example of these range
rules in action is shown in the 1-day bar chart of the SPX below.
There’s a lot to unpack in this image alone, so let’s go one
step at a time. At point 1, we see the RSI push the oscillator signal up into
the 70-80 region. An important point to note here is that prices have NOT
topped in the bull rally. However, the RSI has. Between point 1 and point 2, we
see the oscillator decline just below the 40-50 zone that denotes support for a
bull market. This is the first clue from the RSI that something may be
happening under the hood. At point 2, the oscillator is pushed up into the
orange band in the 55-65 range that denotes resistance for a bear market.
Compare the RSI here with the price action. This is the point where prices have
topped. We would not know this at the time, but the RSI has warned us that we
should consider reducing our long positions and look to take some profits here.
At point 3, the RSI have moved back down to the lower orange band from 25-35,
the support zone for a bear market. If you have not closed your long positions
by now, then you will want to the next time the RSI visits the upper orange
band. This occurs at point 4. You should have finished unwinding any long
positions by now. If not, then you’re in trouble.
Between points 4 and 5, the RSI oscillates between the two
orange bands as price continues its slide down. At point 5, the RSI is pushed
back above the upper orange band and into the upper blue band just slightly.
Much the like the decline between points 1 and 2 that exceeded the lower blue
support band for a bull market, a breach into the upper blue band is the first
promising sign that a trend reversal is trying to develop to the long side of
the market. At point 6, the RSI declines back into the orange band that defines
support for a bear market. This may be discouraging to some, as the RSI fails
to exceed to the upper orange band at point 7. However, at point 8, the RSI
only falls to the lower blue band that denotes support for a bull market. This
is the inverse signal to that formed at point 2, the market has found support
on the RSI at the point where a bull market takes hold. We should look to get
long. From here to point 9, the RSI oscillates gradually upwards between the
bottom of the upper blue band to the top of the bottom orange band. It never
advances strongly into the lower orange band again before making its way into
the upper blue band at point 9. From here, at points 10 and 11 we see similar
signals to those that occurred from point 1 and 2, the RSI tells us that a bear
market is now in trend. The bounce into point 11 is when you should take
profits if you have not already.
These range rules are just the beginning. We still need to
look at how signals in the Composite index and the RSI both form during both
price declines and advances and combine these signals with an Elliott Wave
interpretation. From there we can start to make meaningful trading decisions.
Let’s look at the action in the IWM that encompasses the decline from August
2023 into October 2023. This is a good example because this decline should take
the form of a five-wave impulsive move as it fills out the final leg of a
complex W-X-Y correction (we haven’t covered these yet and is beyond the scope
of today’s lesson). We’ll start with the signals given in the RSI first,
followed by the signals in the composite index. Afterwards, we’ll compare the
signals to construct an Elliott Wave count for the decline. While this example
will take place on a daily chart, the final example will take these lessons apply
them in real time on a 5-minute and 1-minute chart for a live scalp trade
demonstration that I performed today on the RTY. So, let’s begin with the daily
chart of the IWM.
Okay, let’s start with the brief rally in July that pushes
price to its local high in August. The starting point is marked with a red down
arrow to guide your eye. It is also located on the same timestamp for both the
chart and the indicator. The first thing that should jump out to you is that
price has not found it’s local high at the position of the red arrow where the
RSI peaks. This is not uncommon as these formations are often found at the end
of strong moves. The strength of the preceding move begins to lose steam and
the RSI drops, but there’s often enough underlying momentum to push price just
a tad higher. However, the consolidation that precedes this push upwards in
price pulls the RSI down and the final thrust higher doesn’t have enough
strength to move the RSI back above the previous peak. This leads to the
bearish divergence observed at the high going into August.
Let’s look at the remainder of the price divergences. The
first divergence that occurs on the decline down accurately warns us that a
bounce is coming. What level is the RSI at when this divergence occurs? It’s
within the lower orange band I set up earlier that tells us we’ve found support
in a trending bear market. Next, we see price pop up and then decrease again as
the indicator follows suit. At what level does the indicator turn back down
again? That’s right, the upper orange band. This is all I need to see to know
we should be looking for a bearish market in the short to intermediate term.
For those who have been practicing their Elliott Wave counting, these are waves
(i) and (ii). The next divergence occurs when price declines from the 175 level
to the 170 level. It also warns that a bounce is coming. This is the end of
wave (iii). Finally, we see a larger divergence pattern that marks the end of
the downtrend and fills out wave (v). At
this point, I’ve not addressed the sharp spike and reversal patterns that
develop in the oscillator, so let’s do that now.
Okay, so on the chart above we have red arrows numbered 1-5
that are placed over each bounce on the indicator and over the corresponding
bar in price. We’ve already addressed bounce 1 when we talked about the
divergence pattern above. This is a strong bounce that pushes the oscillator
above both the short (orange) and long (blue) moving averages that are plotted
on the indicator. However, as we discussed, it fails in a “V” shaped pattern
within the upper orange band. This is a sell signal or a take profit signal. It
tells us that the market isn’t going to be able to rally above the previous
high for the short term. At the bounce labeled 2, we see a slight stutter in
price that pushes the indicator right into both moving averages. It barely
exceeds the moving averages and possesses the same “V” shaped pattern. Look at
the relative distance traveled by the indicator compared to price. Price closes
at $182.97 on the bar immediately before the bounce. It closes on the bounce at
$185.55. That’s only a difference of $2.58. However, this bounce moves the RSI up
almost 8 points. When the indicator musters a decent bounce while price barely
moves at all, you’re on the wrong side of the market if you position yourself
with the indicator. Sell the market here if you haven’t done so yet, because
there’s about to be a strong move down. At bounce number 3, it moves through
the shorter moving average but is still contained below the longer moving
average. If a bounce can’t push the indicator through both moving averages,
then there’s more downside to be seen. There are two more bounces labeled 4 and
5 further along in the decline. The first is wave (iv) of our five-wave decline
while the second is wave ii of (v). What’s interesting here is that the bounce
for wave ii of (v) manages to push the indicator through both moving averages. Typically,
the sub-wave corrections for the wave count of one lesser degree won’t push the
indicator through the averages. This is a clue that this bounce goes with wave
(v) and not waves (i) or (iii). We should start looking for divergences that
could indicate a trend reversal is on the horizon. Once we’ve covered the
signals from the Composite Index, we’ll be able to combine this information to
construct a complete wave count. So, let’s focus our attention there.
The Composite Index
We’ll start our examination by looking for divergences just
like we did with the RSI. From the red down arrow that marks our starting
point, we see that price once again diverges with the Composite Index,
indicating that a top is approaching. However, look at the formation that
appears on the Composite Index right near the end of the divergence bars. There
is an “M” shaped formation that occurs underneath the short and long moving
averages. This is a strong sell signal for this indicator. Moving along, price
slides downwards from this high. While the RSI had divergence develop here,
there doesn’t appear to be one of the Composite Index. Or is there? Follow the
oscillator signal up. You’ll notice that the oscillator is advancing strongly
while price is consolidating sideways. What did we say above? If the oscillator
moves strongly without price following suit, then you are on the wrong side of
the market if you are positioned with the oscillator. About halfway up this
advance, there is a small “stutter” in the oscillator signal between the short
and long moving averages. This little blip marks the final thrust down to end
the first decline in price.
Price then
moves up higher into the green band overhead. The green and red bands are
overbought and oversold levels that I drew onto the oscillator using the
rectangle tool then extended in the left and right directions. The width of the
rectangle doesn’t matter much. In truth, the line that forms the bottom border
of the overbought band and the line that forms the top border of the oversold
band are what matter. These bands are calibrated using an Elliott Wave count
that I have high confidence in and we’ll discuss them more when I go through
using the oscillators to help inform Elliott Wave counts. For now, just know
they mean overbought and oversold. After price declines again, we see two more
sets of divergences. Each one warns that another bounce will occur in price. In
addition, the final set of divergences shows up clearly on the Composite index
whereas for the RSI, we had to mark a large divergence from the previous move
down to receive a warning that a trend change could be developing. It is clear
that both indicators provide useful signals and should be paired together, but
what about the individual peaks in the Composite index?
In the image above, we see the same five red arrows used to
mark the corrective advances in price throughout this decline, but now we have
six additional orange arrows we should talk about. The first orange arrow marks
the topping pattern formed in the oscillator that I discussed previously. This
is the pattern you want to look for on higher time scales if you want to nail
the top of a move. It may not always look like this, so review historical data
to get an idea for the types of topping patterns your particular market likes
to make. Orange arrow 2 marks the initial decline in price. Notice that the
maximum of the displacement in the oscillator does NOT occur where price finds
support before beginning to turn up. How would we know that the decline is not
finished? The oscillator does not form a divergence pattern at the extreme of
its peak. Take a moment to look at the divergences that form at the orange
arrows numbered 4, 5, and 6. The decline into the orange arrow labeled 2 does
not form a divergence near the oversold band and tells us that this is only the
start of the larger move down. In my experience wave (i) usually does not
diverge with price at the oversold band. The advance in price that leads to the
red number 1 moves the oscillator completely up into the green overbought band.
However, prices have not struck a new high. This is a bearish signal that implies
we’re going to keep moving down from here. Next, we see a decline in price that
takes us to the orange number 3. Notice that the Composite index has been
pushed back down to the top of the oversold band. There is no divergence with
price yet. The bounce up into the red number 2 makes an “M” shaped peak that
fails underneath the faster orange moving average. We’re headed back down.
The move down from the red number 2 into the orange number 4
is the strongest move in the entire decline. There’s a noticeable gap that
forms in price between the red 2 and orange 4. This would be wave iii of (iii).
The Composite index at the orange 4 is pushed back into the oversold band and
forms a new oscillator maximum for the move down. No divergence yet, so there’s
more pain to be had. From here we see another bounce up into the red 3. We see
the Composite index jump above both moving averages. This isn’t a buy signal.
Instead, think back to the discussion we had about the oscillator extreme
formed at the red number 1 relative to price. At the red 3, price is forming a
higher extreme on the oscillator but at a lower price relative to that found at
the red point 2. This is wave iv of (iii). Another observation that those used
to non-Elliott chart patterns may notice is that the oscillator forms and
inverse “head-n-shoulders” pattern using the points found at the orange 3, 4,
and 5. Not all “traditional” patters will show up in our oscillators, but I
have noticed the “head-n-shoulders” and its inverse to be fairly common
formations. We then see price continue down into the orange 5. Notice that the
composite index at the orange 5 comes close to the oversold band but doesn’t
actually breach into it. Instead, this price extreme forms a divergence with
the oscillator and warns that we’re about to see price attempt a rally. The
points at the red 4 and 5 form a larger “M” shaped pattern. If you were looking
at the oscillators alone, you may see the indicator push back down right into
the point where the shorter moving average crosses over the longer moving
average. This is a false buy signal. It’s too early. The best way to avoid false
signals is to have 2 or 3 non-correlated methods that each tell you something
important about price action. The Elliott Wave count I’ve been building in my
mind throughout this decline is not complete, so this signal should be ignored.
Finally, price declines back to new lows forming the divergence pattern at the
orange number 6. The completed Elliott Wave pattern tells me to start looking
for a reversal to form.
Wow….that was a lot. So, now that we have the signals from
both the RSI and the Composite index outlined, let’s combine them together to
construct a wave count for this move downwards in price.
Oscillators and the Elliott Wave Principle
Since we’ve already had a lengthy discussion on the signals
in the indicators themselves, I’m not going to go through constructing the wave
count step-by-step. Instead, what I want you to focus on are some general
guidelines. Wave (i), wave iii of (iii), and wave (v) each move the Composite Index
down into the oversold band at the bottom of the indicator. The maximum
displacement on the indicator is not always where the wave itself ends.
However, this general guideline will help you identify the three waves found
throughout the entire move. In bull markets, the trend is flipped and these signals
would be breaching into the oversold band at the top of the indicator. In
general, I find that wave (ii) will move the indicator back into the opposite
oversold/overbought band compared to wave (i). Wave (iv) is usually a weaker
bounce compared to wave (ii) based on the indicator alone. In this case, wave
(ii) reaches the oversold band on the Composite index while wave (iv) fails
just underneath it. Finally, the smaller bounces on both the RSI and the
Composite index are useful for constructing the internal sub-wave count for the
five waves found in wave (iii). Keep in mind that each wave will have its own
character, and these formations are not hard and fast rules, but they are the
first thing I look at when constructing a wave count on a new chart.
There is one final point I want to make about using the
indicators to construct a wave count. While this example on the daily chart is
a good teaching example, how do we know which time horizon should be used to
construct a wave count for the current wave degree? Afterall, each of these
three waves can easily be subdivided into their own five-wave structures. The
answer is to look at how well price respects the 13-period, 33-period, and
88-period simple moving averages plotted on price. The general guideline I use
is that price should respect the 13-period SMA for the individual wave
structures of waves (i), (iii), and (v). Likewise, the corrective waves (ii)
and (iv) should respect the 33-period SMA. When price crosses through the
88-period SMA I know that we’re moving on to a larger degree pattern and I
should start looking at the wave counts at one degree higher. An example of
these moving averages plotted on price is shown below. You can see how price
follows these guidelines.
Okay, so now we have a complete wave count, and we know how
to use our oscillators to inform us where we are in the middle of a move. How
would we use this information to trade a chart? Originally, I wanted to use
Tradingview’s replay feature to walk through an example. However, the decline
today in the RTY that started around 3:00 p.m. EST has provided me with a good real
time trading example. You’ll have to forgive the clutter on some of the charts
as I was trying to annotate my thoughts and still save screenshots as I went,
all while managing a trade on the 1-minute chart. As you’ll notice these are
1-minute and 5-minute RTY charts. While the the guidelines we discussed in our
previous example were on the daily IWM chart, they will be relevant at all
timescales, you just need to make sure you know the timescale that matches your
wave count. So, let’s begin with a 5-minute RTY chart I captured at 3:30 p.m.
EST today. This is directly after the large move down from the highs of the
day.
Live Trade Example
One thing that jumps out to me is that the Composite Index
and RSI both show a significant oversold reading that ended the move down. The
bounce up comes right above a Fibonacci confluence support zone I drew this
weekend. The indicators tell us that the bounce we see at the moment is
expected. I need to know what a shorter timescale chart shows so I can see if
the initial move up in price to 2086.5 is five waves or 3 waves. I drop down to
the 1-minute chart. These charts were captured after I had entered the trade,
so you won’t see exactly the same thing I saw, but I needed to enter the trade
first instead of focusing on the screenshots.
Okay, when this formed live on my trading screen, price had
pushed the composite index up into the overhead red band that forms my
overbought level on the 1-minute chart. It looks like the move that takes price
to the 2086.5 level counts as five waves to my eyes. The dip that follows
retraces approximately half this move up and doesn’t take the Composite Index
back to overbought, so the correction isn’t done at this point. The five-minute
chart above has a small stutter at the darker pink band. This corresponds to
the 50% retracement of the initial move up. I need to wait. This is a trick I
learned from Connie. Use two charts in a 1:4 time ratio to each other to track
a move. The longer timeframe chart provides information about the larger wave
structure while the shorter chart provides the trade entry. The longer chart
says the correction isn’t finished and the short-term chart tells me that the
first move can count as five waves. That tells me I should be expecting a
zigzag for the correction. The most common place for a zigzag to terminate is
at a Fibonacci or equality relationship to the first wave. Now look at the
Fibonacci extension tool on the screen. In the 1-minute chart, the move
terminated just below the 1.0 extension. At this point, the Composite Index is
forming a small stutter between the short and long moving averages while the
RSI has topped in the upper orange band that defines a bear market correction
and failed to exceed its previous high. Likewise, the Composite Index on the
five-minute chart has just started to turn over. This is my entry signal. Price
can move fast in these timeframes, so I don’t hesitate to short one full RTY
contract. My stop goes just above the 88-period SMA on the 1-minute chart. I
don’t have time to redraw Fibonacci resistance levels on this timescale, so I decided
that if price is going to turn around here I want to be stopped out quick and
know I was dead wrong. My take profit is set at 2080, just above the support
zone in green below the low of the day. If price is going to finish out a wave
(v) it’ll have to get to the support zone at a bare minimum. Let’s see how
things advance on the 1-minute chart.
We did well, price declined sharply just after our entry
allowing us to move our stop two ticks below for a breakeven entry. This trade
is already a success. Sometimes, just learning when to follow your gut and take
the entry is good enough. This is a quick momentum scalp. I just want to
capture a few points, but if I can get the entirety of the wave (v) decline in
price I’ll take it. Let’s keep watching.
It looks like we’ve entered the third wave of this last
decline. We move our stop down to just above what I’m considering as the micro wave
(ii). This is expected to be a fifth wave and we want to trail our stops close
and look for any signs that price is turning around to take our profits.
On the five-minute chart, we’re encountering our first
resistance zone. This is the light pink band plotted in the middle of the
Composite Index. If I’m wrong and this is part of the larger wave (iv)
correction, I expect price to bounce up from here and stop me out.
Here’s an interesting point. Compare the position of the
Composite Index in this screenshot to the previous one. Then compare the height
of the current bar. The oscillators we use can only see closing prices. This
means a signal that seems obvious in hindsight isn’t always there in the middle
of a trade. The screen capture now would suggest that we’re in a correction and
the decline isn’t done. It would tell me that I can safely stay in my position.
However, I’m watching this unfold and always keeping an eye on the signals
forming in both charts throughout the trade. I cannot have more than one day
trade running at a time unless it is turning into a swing trade. I flip back to
my 1-minute chart.
Divergence. The Composite Index has come down and struck the
oversold band, then pulled back and attempted to retest the oversold band but
fails above it. Price has already come back up to 2085. I quickly change my
take profit to a market order and exit the trade.
We made the right decision. Price would have pushed up
through my stoploss and I managed to save an extra point. Now that I’m flat on
the market, I can reassess and see if there’s a reason to re-enter the
position.
If price is going to come back up above entry then this has
to be a larger wave (iv). The retracement I’m seeing is too deep to be a wave
(iv). I label the previous three waves as subwaves a-b-c of a larger degree
wave (a). The decline I traded was wave (b), and the next leg up should push
price back to about 2091. Let’s see what happens.
This chart shows the final chart when I logged off today.
The high marked “b” came right up to approximately 2091. However, I was not
able to see the subdivisons in price to mark a clear five wave structure in wave
(c) that would end the move. It’s extremely likely that a complete five wave
pattern is present on the 30 second chart. However, I did not see a compelling
re-entry signal from my oscillators, so I stayed flat. It was the correct
decision. At this point, the markets are closing, futures tend to drift in one
direction for about 15 minutes after RTH closes and with NVDA earnings as a
potential catalyst to send price shooting off in either direction, I don’t feel
like placing a bet on whether the correction is complete or if we’re going to
see a deeper (iv).
Hopefully, this has been a useful article for you. I’ve
learned a lot simply by writing all this up to share with you and it’s been
beneficial for my trading this week. I’ve started viewing price action in a new
lens and this article has forced me to consider the relationships between wave
counts and the oscillators at smaller degrees. Until next time, take care of
yourself, manage your risk, and always keep learning.
Best,
DW
(PS: The Composite Index code is listed below)
Composite Index Tradingview Code:
//@version=5
indicator(title="Composite Index",
shorttitle="Composite")
//This first section of the code builds the composite index
indicator itself
//None of this code should need to be changed, it simply
provides the indicator we'll be using to check for divergences against the
standard rsi indicator
// Define the Custom MA type function "ma"
ma(source, length, type) =>
switch type
"SMA" => ta.sma(source, length)
"Bollinger Bands" => ta.sma(source, length)
"EMA" => ta.ema(source, length)
"SMMA
(RMA)" => ta.rma(source, length)
"WMA" => ta.wma(source, length)
"VWMA" => ta.vwma(source, length)
//Define variables, moving average, and momentum lengths
fastMaTypeInput = input.string("SMA",
title="Fast MA Type", options=["SMA", "Bollinger
Bands", "EMA", "SMMA (RMA)", "WMA",
"VWMA"], group="MA Settings", display = display.data_window)
fastMaLengthInput = input.int(13, title="Fast MA
Length", group="MA Settings", display = display.data_window)
slowMaTypeInput = input.string("SMA",
title="Slow MA Type", options=["SMA", "Bollinger
Bands", "EMA", "SMMA (RMA)", "WMA",
"VWMA"], group="MA Settings", display = display.data_window)
slowMaLengthInput = input.int(33, title="Fast MA
Length", group="MA Settings", display = display.data_window)
slow_rsi_length=14
rsi_mom_length=9
fast_rsi_length=3
fast_rsi_ma_length=3
//calculate the value of the composite_index
//per CB's book, the index is the 9-period momentum
calculation of a 14 period RSI added to the 3-period simple moving average of a
fast 3-period RSI....that's it.
standard_rsi=ta.rsi(close, slow_rsi_length)
fast_rsi=ta.rsi(close, fast_rsi_length)
standard_rsi_momentum=ta.mom(standard_rsi, rsi_mom_length)
fast_rsi_ma=ta.sma(fast_rsi, fast_rsi_ma_length)
composite_index = standard_rsi_momentum + fast_rsi_ma
//calculate a fast and slow moving average to add to the
index. CB recommends a 13 length fast sma and 33 length slow sma
composite_index_fast_ma = ma(composite_index,
fastMaLengthInput, fastMaTypeInput)
composite_index_slow_ma= ma(composite_index,
slowMaLengthInput, slowMaTypeInput)
//plot the index and the two moving averages as a single
indicator
plot(composite_index, color=color.white, linewidth=1)
plot(composite_index_fast_ma, color=color.orange,
linewidth=1)
plot(composite_index_slow_ma, color=color.rgb(40, 240, 240),
linewidth=1)
// Plot crossing points for easier tracking
plot(ta.crossover(composite_index_fast_ma,
composite_index_slow_ma) ? composite_index_fast_ma : na, color = #30fa08,
style=plot.style_cross, linewidth = 4)
plot(ta.crossunder(composite_index_fast_ma,
composite_index_slow_ma) ? composite_index_fast_ma : na, color = #d630ff,
style=plot.style_cross, linewidth = 4)
