Gain/Loss Moving Average

The Gain/Loss Moving Average tool tracks momentum by calculating the average percentage change in price to help traders identify trend exhaustion and reliable divergences without the constraints of range-bound oscillators.

Usage

The Usage section describes how the script can be used to analyze market momentum and trend shifts. Traders typically use this indicator to identify periods where gains or losses are accelerating or decelerating.

• Trend Direction: When the indicator is above the zero line, the average gains outweigh the average losses, suggesting a bullish trend. Conversely, values below zero indicate a bearish trend.
• Divergence Trading: Because the indicator is not range-bound (unlike the RSI), it can provide clearer divergence signals. If price makes a higher high but the Gain/Loss Moving Average makes a lower high, it suggests weakening bullish momentum.
• Typical Price Analysis: Users can change the "Source" input to hlc3 (Typical Price) to capture a broader range of price action data within each candle, which can be more effective for identifying divergences than using the "Close" price alone.
• RSI Synchronization: To sync this indicator with a standard RSI, you can use the formula (2 * RSI Length) - 1. For example, setting the length to 27 will approximate the behavior of a 14-period RSI while maintaining the benefits of an unbounded scale.

Details

The Gain/Loss Moving Average calculates the change in price relative to the average of the current and previous price points. This approach ensures mathematical symmetry in the calculation. By dividing the price change by the average price and multiplying by 100, the script produces a percentage-based momentum value.

Unlike the Relative Strength Index (RSI), which compresses values into a 0-100 scale, this indicator remains unbounded. This lack of compression prevents the indicator from "flattening" during extreme market moves, allowing for more distinct peaks and troughs that are often more reliable for technical analysis. The script offers two types of moving averages for smoothing this data: Simple Moving Average (SMA) and Smoothed Moving Average (RMA).

Settings

• Source: Determines the price data used for the calculation (e.g., Close, Open, High, Low, HLC3).
• Moving Average Type: Allows the user to choose between "Simple" (SMA) for a standard average or "Smoothed" (RMA) for a calculation similar to the internal smoothing of the RSI.
• Length: The lookback period used for the moving average calculation. A higher length results in a smoother line with less noise, while a shorter length is more responsive to price changes.

FAQ

How does this indicator differ from the RSI?

While both measure the strength of gains versus losses, the Gain/Loss Moving Average is not range-bound. This prevents the indicator from hitting a ceiling or floor, which can make divergences easier to spot during strong trends.

Why use Smoothed instead of Simple moving averages?

The "Smoothed" option uses a Rolling Moving Average (RMA), which is the same smoothing method used in the standard RSI. This provides a more stable, less reactive output compared to the Simple Moving Average.

How can I access the Gain/Loss Moving Average?

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