RSI Supply / Demand Zones

The RSI Supply / Demand Zones indicator identifies and plots price regions where the Relative Strength Index (RSI) reached overbought or oversold levels, helping traders visualize potential exhaustion and reversal zones directly on the price chart.

Usage

The tool is primarily used to identify areas of supply and demand based on extreme RSI readings. When the RSI crosses above the overbought threshold, a supply zone is created between the high and low of that period. Conversely, when the RSI crosses below the oversold threshold, a demand zone is established.

• Pivot Points: The boundaries of these zones can act as pivot points for trend reversals.
• Trend Continuation: In strong trends, small tops or bottoms (horizontal lines) often represent brief accumulation or distribution phases before the trend continues.
• Price Entry Alerts: The script includes logic to alert the user when price enters a previously established supply or demand zone, which may signal a potential reaction.

Details

The indicator tracks the highest high and the lowest low during the specific periods where the RSI is outside the defined thresholds. For overbought conditions, it captures the range from the candle that first triggered the overbought state to the highest point reached during that excursion. For oversold conditions, it tracks the range from the trigger candle to the lowest point reached. By projecting these levels forward, the tool highlights historical areas of price imbalance.

Settings

• Length: Determines the lookback period for the RSI calculation (default is 14).
• Overbought Threshold: The RSI level above which the script identifies a supply zone (default is 70).
• Oversold Threshold: The RSI level below which the script identifies a demand zone (default is 30).

FAQ

How do I use the RSI Supply / Demand Zones?

You can use it to identify historical levels of price exhaustion. When price returns to a zone previously marked as overbought or oversold, look for price action confirmation to signal a reversal or a continuation.

Can I change the sensitivity of the zones?

Yes, by adjusting the RSI Length or the Overbought/Oversold thresholds in the settings, you can make the indicator more or less sensitive to price fluctuations.

How can I access RSI Supply / Demand Zones?

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