Momentum Exhaustion Indicator

The Momentum Exhaustion Indicator tool aims to identify points of momentum exhaustion and potential trend reversals by combining the Relative Strength Index (RSI) and Money Flow Index (MFI).

Usage

The Usage of the Momentum Exhaustion Indicator focuses on isolating periods of maximum risk and maximum opportunity rather than providing direct buy or sell signals.

• Overbought Conditions: A red triangle appears above the bar when both the RSI and MFI cross above the defined upper threshold. This indicates that the current upward momentum may be exhausted, signaling a period of high risk for long positions.
• Oversold Conditions: A green triangle appears below the bar when both the RSI and MFI cross below the defined lower threshold. This indicates that downward momentum may be reaching a limit, suggesting a potential area of opportunity.

Details

This script enhances traditional momentum analysis by requiring convergence between price-based momentum (RSI) and volume-weighted momentum (MFI). By combining these two metrics, the indicator filters out noise and provides more robust signals of exhaustion. The logic calculates the MFI using volume and price changes, while simultaneously monitoring the RSI of the selected source. An exhaustion signal is only triggered when both oscillators agree that the market has reached an extreme level (Overbought or Oversold).

Settings

• Length: Sets the lookback period for both the RSI and MFI calculations.
• Upper Band: Defines the threshold level for overbought exhaustion (default is 80).
• Lower Band: Defines the threshold level for oversold exhaustion (default is 20).
• Source: Determines the price data used for the RSI calculation (e.g., Close, Open, High, Low).

FAQ

How do I interpret the signals?

The signals represent points where momentum is likely overextended. Red triangles suggest potential bearish exhaustion, while green triangles suggest potential bullish exhaustion. They should be used as confluence with other technical analysis tools.

Can I use this for automated alerts?

Yes, the script includes built-in alert functionality that triggers once per bar when an overbought or oversold exhaustion condition is met.

How can I access the Momentum Exhaustion Indicator?

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