Vol_Weighted RSI: Extending the power of the classic RSI

The Vol_Weighted RSI indicator provides a modernized version of the classic Relative Strength Index by integrating volume weighting and a dual-period sentiment backdrop to help traders identify re-entry points and trend strength.

Usage

The indicator can be used to identify trend direction and potential momentum shifts through its dual-component display:

• Sentiment Backdrop: A longer-period RSI displayed as an area plot. It represents the broader market sentiment. When the backdrop is green (above zero), the long-term trend is bullish; when red (below zero), it is bearish.
• Fast RSI Line: The primary signal line. Traders can look for crossovers of the zero line or interactions with the sentiment backdrop to find "re-entry" points during established trends.
• Volume Weighting: By enabling the volume-weighted option, the RSI becomes more reactive to price movements occurring on high volume, providing a view more aligned with Wyckoffian principles of effort vs. result.
• Signal Levels: The script includes dotted levels at +40 and -40 to represent strong bullish and bearish momentum, respectively.

Details

This tool improves upon the standard RSI by using a Weighted Moving Average (WMA) in its calculation instead of the traditional Wilder's Smoothing (SMA/RMA). The WMA is chosen for its natural suitability for market price data series.

The indicator also scales the output to a +100 / -100 range with a zero signal line, making it intuitive to read as an oscillator. The "Sentiment Factor" multiplier allows users to plot a secondary, longer-term RSI simultaneously. To simplify the visual noise of the long-term trend, a "Step" function is applied to the sentiment backdrop, rounding the values to highlight broad strength categories rather than minor fluctuations.

Settings

• Length: The lookback period for the primary RSI calculation.
• Sentiment Factor: A multiplier applied to the Length to determine the period of the long-term sentiment backdrop.
• Smoothing: The period for the WMA applied to the RSI output to reduce market noise.
• Volume Weighted?: A toggle to incorporate volume into the RSI calculation.
• Step: A rounding factor for the sentiment backdrop to create a "stepped" visual effect, focusing on broad strength levels.

FAQ

How do I use this to find re-entries?

Look for instances where the Fast RSI line pulls back toward the zero line while the Sentiment Backdrop remains strongly on one side (e.g., a dip in the RSI line while the backdrop is green).

Can I make this look like a classic RSI?

Yes. To approximate a classic RSI, set the Length to 14, Smoothing to 1, Sentiment Factor to 1, and disable the Volume Weighted option. Note that the output will still be scaled from +100 to -100 and use WMA.

How do I access the Vol_Weighted RSI?

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