Smooth RSI

The Smooth RSI indicator is an oscillator designed to provide a cleaner, filtered version of the standard Relative Strength Index to identify trend reversals and momentum shifts with reduced noise. By applying multiple moving average smoothing techniques and slope calculations, it offers traders a more stable view of market conditions across various asset classes, including Forex, stocks, and crypto.

Usage

The Usage section highlights how traders can interpret the Smooth RSI for trade entries and exits.

• Oversold/Overbought Levels: A common strategy involves identifying when the oscillator reaches key threshold levels. For example, entering a long position when the RSI rises from the 35 level and exiting or shorting when it begins to descend from the 70 level.
• 50-Level Crosses: The midline acts as a momentum filter. A cross above 50 suggests bullish momentum, while a cross below 50 suggests bearish momentum.
• Pivot Labels: The indicator automatically identifies high and low pivots based on slope and price action, marking them with "High" and "Low" labels to highlight potential exhaustion points.

Details

The script constructs the Smooth RSI through several calculation layers:

1. Composite Smoothing: It calculates two Simple Moving Averages (SMAs) of a base RSI, combines them, and then applies a secondary RSI calculation to that sum.
2. Linear Regression Slope: It uses a slope calculation to determine the trajectory of the smoothed RSI, which helps in identifying the "High" and "Low" pivot points.
3. Dynamic Extremes: The indicator tracks the highest and lowest points over a user-defined period to validate pivot signals against recent price extremes.

Settings

• Fast Length: The period for the first SMA used in the composite calculation.
• Slow Length: The period for the second SMA used in the composite calculation.
• C Length: The period for the final RSI calculation applied to the smoothed values.
• Slope Length: The lookback period used to calculate the linear regression slope for pivot detection.
• Period: The lookback period used to determine historical highs and lows for pivot validation.

FAQ

How do I interpret the "High" and "Low" labels?

The labels appear when the script detects a pivot in the smoothed RSI trajectory that coincides with specific price action conditions, suggesting a potential trend reversal.

What assets work best with the Smooth RSI?

While originally designed with Forex trading in mind, the smoothing mechanism makes it applicable to any liquid asset, including equities and indices, to filter out intraday volatility.

How can I access the Smooth RSI?

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