MAD RSI

The MAD RSI indicator is a volatility-adjusted momentum tool that integrates Mean Absolute Deviation (MAD) into the Relative Strength Index (RSI) framework to better identify trend regimes and filter market noise.

Usage

The Usage section focuses on interpreting the dynamic deviation bands and the central 50-level to determine market bias.

• Bullish Regime: A bullish bias is confirmed when the Lower Deviation band is above the 50-level. This suggests that even at the lower end of its recent volatility range, momentum remains strong.
• Bearish Regime: A bearish bias is confirmed when the Upper Deviation band is below the 50-level. This indicates that even the upward peaks of recent momentum are failing to cross the midline.
• Trend Continuation: Users can look for the RSI to stay bounded within its MAD bands during trending phases, using the background coloring as a visual guide for the current directional pressure.
• Volatility Expansion: Widening gaps between the upper and lower bands indicate increasing volatility, often preceding a significant trend move.

Details

The MAD RSI operates by calculating the standard RSI and then applying a Mean Absolute Deviation calculation to it. MAD is used instead of Standard Deviation because it is less sensitive to extreme outliers and spikes, providing a more stable environment for trend classification.

The indicator constructs dynamic bands:

1. RSI Calculation: Computed based on the user-defined source and length.
2. Mean RSI: A Simple Moving Average (SMA) of the RSI.
3. Mean Absolute Deviation: The average distance between the RSI and its mean.
4. Bands: The Upper Band is RSI + MAD and the Lower Band is RSI - MAD.

Settings

• RSI Length: Determines the lookback period for the standard RSI calculation.
• RSI Source: The price data point (e.g., Close, Open, Low) used to calculate the RSI.
• MAD Length: The lookback period used for calculating both the average RSI and the Mean Absolute Deviation.

FAQ

How do I use the MAD RSI for trade entries?

The indicator is best used as a regime filter; a long bias is established when the lower band crosses above 50, and a short bias when the upper band crosses below 50.

What timeframes work best with this indicator?

The MAD RSI is versatile and can be used on any timeframe, though users should adjust the RSI and MAD lengths to suit the specific volatility of the asset and timeframe being traded.

How can I access the MAD RSI?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.