Laguerre RSI

What is the Laguerre RSI?

The Laguerre RSI is John Ehlers' reworking of RSI in which the lookback window is replaced by a four-stage Laguerre filter. Price runs through a cascade of four filter stages governed by a single damping factor, gamma, between 0 and 1. The RSI-style ratio of up moves to total moves is then computed from the differences between successive filter stages rather than from raw bar-to-bar changes, and the output is scaled 0 to 1.

The point of the Laguerre structure is time warping: with only four terms, the filter weights recent prices heavily while keeping a long decaying memory of older ones, something a plain moving average would need far more periods (and far more lag) to approximate. The result is an oscillator that plots very smooth yet still turns quickly, and that tends to pin near 1 in strong up-moves and near 0 in strong down-moves; 0.8 and 0.2 are the common decision thresholds.

How traders use it

• As a trend-hold read: the oscillator staying pinned above 0.8 marks a persistent up-move, and the drop back below that level is used as an exhaustion or exit cue, mirrored at 0.2 for down-moves.
• As a reversal trigger in range conditions: crossing back up through 0.2 or down through 0.8 gives mean-reversion entries, best filtered by a regime check since those signals fail badly in trends.
• As a one-knob oscillator: gamma alone sets responsiveness, lower values reacting faster and higher values smoothing harder, which is why adaptive variants tie gamma to a volatility or fractal-energy measure.