RSI Failure Swing Pattern (with Alerts & Targets)

The RSI Failure Swing Pattern (with Alerts & Targets) indicator identifies high-probability trend reversal signals based on the Relative Strength Index (RSI) using J. Welles Wilder's failure swing concept.

Usage

The indicator detects two primary reversal structures and plots trade levels directly on the chart:

• Bullish Failure Swing (Buy): This occurs when the RSI enters the oversold zone (below 30), bounces, forms a higher low above the oversold level, and subsequently breaks above its intermediate peak.
• Bearish Failure Swing (Sell): This occurs when the RSI enters the overbought zone (above 70), declines, forms a lower high below the overbought level, and breaks below its intermediate trough.

Upon detection, the tool provides:

• Entry: A blue line marking the closing price of the signal bar.
• Stop-Loss: A red line set at the recent swing high or low.
• Targets: Two take-profit levels based on customizable risk-reward ratios (default 1:1 and 1:2).

Details

The script follows a state-machine logic to track the progression of an RSI swing. For a bullish pattern, it requires the RSI to first dip into oversold territory to establish a "trough," followed by a recovery, a secondary low that remains above the initial trough, and finally a breakout above the "pivot high" formed between the two lows. This multi-step confirmation filters out standard overbought/oversold exhaustion signals that often lead to false breakouts. The risk management component calculates the stop-loss based on the highest high or lowest low of the two preceding bars, ensuring the trade has a clear invalidation point based on recent price action.

Settings

Main Settings

• RSI Length: Determines the period used for the RSI calculation.
• Overbought Level: The threshold for identifying overbought conditions (default 70).
• Oversold Level: The threshold for identifying oversold conditions (default 30).
• Risk-Reward Target 1 (RR 1:X): Sets the multiplier for the first profit target.
• Risk-Reward Target 2 (RR 1:X): Sets the multiplier for the second profit target.
• Line Extension (Bars Forward): Controls how many bars into the future the entry and target lines are projected.

FAQ

How do I use the signals provided by this tool?

You can use the buy and sell labels as entry points for trend reversal trades, utilizing the provided stop-loss and target lines to manage your risk and exit strategy automatically.

Can I set alerts for the signals?

Yes, the indicator includes built-in alert conditions for buy/sell signals, as well as specific alerts for when price hits the stop-loss or profit targets.

How can I access this script?

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