Relative Momentum Index (RMI) Oscillator

The Relative Momentum Index (RMI) Oscillator indicator is a versatile momentum tool that adapts the standard RMI into a normalized oscillator to identify overbought/oversold conditions and trend shifts.

Usage

The Usage section describes how traders can interpret the various signals generated by the tool:

• Overbought/Oversold: The most common approach involves identifying extreme readings. Sell signals may occur when the oscillator exceeds the upper boundary, while buy signals may occur when it falls below the lower boundary.
• Trailing Signal Line: By enabling the "Use Trailing Signal" option, a Simple Moving Average (SMA) is plotted alongside the oscillator. Crossovers between the RMI and this trailing MA can indicate shifts in momentum.
• Color Fills: When enabled, the fill colors provide a visual representation of market phases. For example, green fills near the bottom suggest accumulation, while red fills near the top suggest distribution. Blue fills often indicate price "chasing" or momentum continuation, while black/dark fills might signify capitulation.
• Fisher Transformation: Users can enable this feature to change the distribution of the oscillator, potentially making turning points more distinct and sharper.

Details

The Relative Momentum Index (RMI) is a variation of the RSI. While the RSI calculates momentum based on the average of gains and losses over a period, the RMI uses the sum of gains and losses, which can result in smoother oscillations.

This implementation applies an additional oscillation layer, similar to a Stochastic calculation, to normalize the values between -1.0 and 1.0 (or -0.5 to 0.5 depending on settings). This normalization makes it easier to apply the Fisher Transformation, a mathematical process that attempts to give the oscillator a Gaussian probability distribution, making the peaks and troughs more extreme and identifiable.

Settings

RMI Settings

• Relative Momentum Length: The lookback period used for the underlying RMI calculation (default: 14).
• Oscillation Length: Controls the normalization period. Setting this to 1 will output the raw RMI values (0-100 scale).
• Input Source: The price source used for the calculation (default: close).

Smoothing & Signal

• Source Pre-Smoothing: Applies smoothing to the price source before the RMI is calculated.
• Oscillator Post-Smoothing: Applies smoothing to the final oscillator output.
• Use Trailing Signal: Toggles the visibility of a secondary signal line (SMA).
• Trailing MA Length: The lookback period for the Trailing Moving Average.

Visuals

• Use Fisher Transformation: Toggles the Fisher Transform mathematical modification.
• Use Fill Colors on MA: Enables dynamic background coloring between the oscillator and the signal line based on momentum levels.
• RMI Oscillator Color: Customizes the color of the main oscillator line.
• Trailing MA Color: Customizes the color of the signal line.

FAQ

How do I use the Fisher Transformation setting?

The Fisher Transformation is best used to identify sharp turning points. Note that when enabled, the standard overbought and oversold lines may require visual adjustment as the values can exceed typical ranges.

What is the difference between RMI and RSI?

While the RSI uses an Exponential Moving Average (RMA) of price changes, the RMI uses a sum of gains and losses, which some traders find provides a more reliable oscillation for timing entries.

How do I access Relative Momentum Index (RMI) Oscillator?

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