RSI Divergency and Golden Ratio

The RSI Divergency and Golden Ratio indicator is a comprehensive momentum tool designed to identify market reversals through the detection of classic RSI divergences while incorporating moving average and Fibonacci-based levels for trend confirmation.

Usage

The script is used to identify potential trend exhaustion and reversal points by comparing price action against the Relative Strength Index (RSI).

• Positive Divergency: Indicated by a green pole on the RSI pane. This occurs when the price makes a lower low while the RSI makes a higher low (at the "Divergency Scanner Distance"), suggesting weakening bearish momentum.
• Negative Divergency: Indicated by a red pole on the RSI pane. This occurs when the price makes a higher high while the RSI makes a lower high, suggesting weakening bullish momentum.
• SMA Crossover: The indicator plots an SMA of the RSI. Users can look for crossovers between the RSI line and its SMA as secondary confirmation for entry or exit signals.
• Golden Ratio Level: The script calculates a dynamic 0.618 Fibonacci level based on the highest and lowest RSI values within a specified lookback period. This level acts as a significant pivot point or attraction zone for momentum.

Details

The indicator calculates standard RSI and then scans a user-defined lookback window to find historical price peaks and troughs. For a divergence to be valid, it checks if the previous RSI extreme was in overbought (>70) or oversold (<30) territory and ensures the price movement contradicts the RSI movement.

The Fibonacci calculation identifies the absolute high and low of the RSI over a long-term lookback (default 233 periods) and plots the 61.8% level relative to the dominant trend direction within that window.

Settings

• Length: The period used to calculate the standard RSI (default 14).
• Source: The price data used for RSI calculation (default Close).
• Divergency Scanner Distance: The lookback window (in bars) used to search for previous price peaks/troughs to compare for divergence.
• SMA Distance: The period used for the Simple Moving Average of the RSI.
• Fibonacci Distance: The lookback window used to determine the highest and lowest RSI values for the Golden Ratio calculation.

FAQ

How do I access the RSI Divergency and Golden Ratio?

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

What do the vertical green and red lines mean?

The vertical lines (poles) represent detected divergences. Green indicates a Positive (bullish) Divergence, while red indicates a Negative (bearish) Divergence.

How is the Golden Ratio level calculated?

It finds the highest and lowest RSI values over the "Fibonacci Distance" and plots the 61.8% retracement level between those two points.