RSI true swings indicator

The RSI true swings indicator is a comprehensive trend reversal tool that identifies potential price swings by combining Relative Strength Index (RSI) dynamics with volume analysis and price action filters. It aims to provide traders with high-probability entry points by ensuring momentum, liquidity, and bar characteristics align before issuing a signal.

Usage

The indicator generates "BUY" and "SELL" labels on the chart based on specific technical criteria.

• Bullish Signals (BUY): These occur when the RSI crosses above the lower threshold (default 40) while volume is above its 20-period moving average and the current bar demonstrates bullish price action (closing above the previous high with a size greater than the average).
• Bearish Signals (SELL): These occur when the RSI crosses below the upper threshold (default 60) with confirming volume and bearish price action (closing below the previous low with a size greater than the average).

Trading Recommendations:

• Entry: A common entry point is the OHLC4 (average price) of the signal bar. If the signal bar is exceptionally large, consider waiting for a minor retracement.
• Trend Alignment: When a signal appears counter to the prevailing trend, it may indicate a divergence. In such cases, waiting for a secondary confirming signal can provide a safer entry.
• Exit/Stop Loss: Recommended stop-loss levels are typically placed at the recent swing highs (for shorts) or swing lows (for longs).

Details

The script evaluates four primary factors to filter out noise and identify true market swings:

1. RSI Momentum: Monitors crossovers and crossunders of user-defined thresholds to capture shifts in momentum.
2. Volume Confirmation: Ensures that the signal is backed by market participation by checking if current volume exceeds its 20-period Simple Moving Average (SMA).
3. Relative Bar Size: Uses a 20-period SMA of the bar range (High - Low) to ensure that the signal bar represents a significant move rather than market noise.
4. Price Action Filters: Incorporates candle closing positions relative to previous candles and the bar's internal structure (e.g., body size and wick placement) to confirm directional strength.

Settings

• RSI Upper threshold: Sets the level for bearish reversals (overbought area). Default is 60.
• RSI Lower threshold: Sets the level for bullish reversals (oversold area). Default is 40.

FAQ

How do I use the RSI true swings indicator?

The indicator is used to identify reversal points by looking for BUY or SELL labels that appear when RSI momentum, volume, and price action criteria are simultaneously met.

On which timeframes does this work best?

The indicator is versatile and can be applied to any timeframe of your choice, though it is often more reliable on higher timeframes where price action noise is reduced.

How can I access this tool?

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