RSI Shaded

The RSI Shaded indicator provides a visually enhanced Relative Strength Index (RSI) experience by highlighting extreme price levels and identifying potential trend reversals through divergences. It aims to simplify the identification of overbought and oversold conditions while offering optional smoothing and volume-weighting features for more robust analysis.

Usage

The Usage section focuses on interpreting the various visual cues provided by the indicator.

• Overbought/Oversold Identification: The script highlights areas where the RSI exceeds the user-defined overbought (OB) or oversold (OS) levels. Users can use these areas to identify potential exhaustion points in the current trend.
• RSI vs. EMA: By default, the indicator plots an EMA of the RSI. The space between the RSI and its EMA is shaded, providing a clear visual representation of momentum strength. When the RSI is above the EMA, momentum is generally considered bullish, and bearish when below.
• Divergences: The tool automatically detects and plots bullish and bearish divergences. A bullish divergence occurs when price makes a lower low but the RSI makes a higher low relative to its previous peak within an oversold context. Conversely, a bearish divergence occurs when price makes a higher high but the RSI makes a lower high within an overbought context.
• Histogram Style: Users can switch the RSI plot to a histogram style for a different perspective on momentum fluctuations.
• Volume Weighting: Enabling volume-based calculation scales the source input by volume, which can help filter out price movements occurring on low liquidity.

Details

The RSI Shaded script calculates a base RSI and provides the option to smooth it using a Simple Moving Average (SMA) over a "Cumulative Length." This cumulative approach helps reduce noise in lower timeframes. The divergence logic is specifically optimized to look for "extreme" divergences, meaning it checks if previous RSI peaks or troughs were beyond the defined OB/OS thresholds before confirming a signal. This adds a layer of confirmation to traditional divergence detection.

Settings

Main Settings

• Source: The price data used for calculations (e.g., Close, HL2).
• Length: The lookback period for the standard RSI calculation.
• Cumulative Length: The period used to average the RSI if "Show Cumulative RSI?" is enabled.
• EMA of RSI Length: The period for the Exponential Moving Average applied to the RSI line.

Thresholds & Styles

• Over Bought: The upper threshold for identifying overextended prices (default 85).
• Over Sold: The lower threshold for identifying overextended prices (default 15).
• Show Cumulative RSI?: Toggles between the raw RSI and a smoothed SMA version.
• Volume Based?: If enabled, multiplies the source by volume before RSI calculation.
• Histogram Style?: Switches the primary RSI line to a histogram display.
• Show EMA of RSI?: Toggles the visibility of the signal EMA line.
• Color Extreme Bars?: If enabled, colors the price bars on the chart when RSI is in extreme zones.
• Show Divergences?: Toggles the visual markers for detected divergences.

FAQ

• How can I use the divergences? Divergences are typically used as leading indicators for potential trend reversals. A bullish divergence triangle suggests a potential upward move, while a bearish triangle suggests a potential downward move.
• What is the benefit of Cumulative RSI? Cumulative RSI smooths out the oscillations of the standard RSI, making it easier to identify the primary momentum trend and reducing false signals in volatile markets.
• How do I get access to RSI Shaded? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.