L2 Ehlers Rocket RSI Indicator

The L2 Ehlers Rocket RSI Indicator tool provides a modern adaptation of the classic RSI by applying a Fisher transform to a specialized accumulation of price movement, allowing traders to identify cyclic turning points with high precision.

Usage

The Usage section describes how the script can be used to identify trend exhaustion and potential reversals. The indicator consists of two primary lines: the RocketRSI (fast line) and the Trigger (slow line).

• Oversold Entry: A potential long opportunity occurs when the RocketRSI crosses over the -2.00 level.
• Overbought Exit: A potential exit or short opportunity occurs when the RocketRSI crosses under the 2.00 level. Note that using "crosses under 2.00" rather than "crosses above" allows winning positions to trend further before exiting.
• Crossover Signals: The interaction between the RocketRSI and its Trigger line provides early signals for momentum shifts, often visualized by the cloud fill between the two lines.

Details

This indicator is based on John Ehlers' 2018 article, "RocketRSI—A Solid Propellant For Your Rocket Science Trading." Unlike the traditional Wilder's RSI, which uses averages, this version utilizes a simple accumulation of up and down closes over a specific momentum period.

The process involves:

1. Momentum Calculation: Calculating the momentum over a half dominant cycle.
2. SuperSmoother Filter: Applying a low-pass filter to the momentum to remove high-frequency noise.
3. Accumulation: Summing the positive and negative changes of the filtered output.
4. Fisher Transform: Normalizing the RSI values to create a Gaussian probability distribution, which results in sharper, more distinct peaks at market turning points.

Settings

General Settings

• Price: Determines the source data used for calculation (default is hl2).
• Smooth Length: The period used for the SuperSmoother filter to reduce noise.
• RSI Length: The lookback period for calculating price momentum and accumulation.
• OB/OS Level: Defines the threshold for overbought and oversold conditions (default is 2.0).

FAQ

How do I access the L2 Ehlers Rocket RSI Indicator?

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

What makes this different from a standard RSI?

The Rocket RSI uses a Fisher transform and a SuperSmoother filter, which creates more definitive spikes at cyclical extremes compared to the more rounded movement of a standard RSI.

Can I use this for trend following?

While primarily designed for identifying cyclic turning points and mean reversion, it can be used for trend following by observing the position of the RocketRSI relative to its Trigger line and the zero median.