FREE INDICATOR: Laguerre RSI

The Laguerre RSI indicator utilizes a four-element Laguerre filter to provide a smoothed, low-lag alternative to the traditional Relative Strength Index (RSI) for identifying momentum shifts and trend reversals.

Usage

The Usage section describes how the script can be used to identify market conditions and potential entry or exit points. Unlike a standard RSI, the Laguerre RSI moves more decisively between the 0 and 1 boundaries, making it effective for both trend following and mean reversion strategies.

• Momentum Bursts: Rapid moves from the lower boundary toward the upper boundary often indicate the start of a strong bullish momentum phase. Conversely, a sharp decline from the upper boundary indicates bearish momentum.
• Trend Filtering: The indicator can act as a trend "switch." Remaining near the upper boundary (above the Overbought level) suggests a strong uptrend, while remaining near the lower boundary (below the Oversold level) suggests a strong downtrend.
• Mean Reversion: Traders can use the Overbought (0.80) and Oversold (0.20) levels to identify potential exhaustion points in a trend.

Details

The Laguerre RSI is based on the concepts introduced by John Ehlers. It replaces the standard linear time-domain filters with a Laguerre transform. This construction allows the indicator to provide a much smoother output with significantly less lag than a simple or exponential moving average of the same length.

The calculation uses a "Gamma" factor to determine the damping of the filter. By processing price data through four specific Laguerre stages (L0 through L3), the script calculates the ratio of upward changes to the total change (upward + downward), resulting in an oscillator that ranges from 0 to 1.

Settings

• Gamma: Adjusts the responsiveness of the filter. Higher values result in a smoother line with more lag, while lower values make the indicator more reactive to price changes.
• Over Bought: Sets the threshold for the upper horizontal level, typically used to identify trend strength or potential reversals.
• Over Sold: Sets the threshold for the lower horizontal level, typically used to identify trend weakness or potential bounces.
• Smoothing (1 = off): Applies an Exponential Moving Average (EMA) to the Laguerre RSI output to further reduce noise.
• 3 colors?: Toggles the coloring logic of the plot. When enabled, the line changes color based on the direction of movement relative to the threshold levels (Up, Down, or Neutral).

FAQ

How do I interpret the Gamma setting? A higher Gamma value (e.g., 0.85) will make the Laguerre RSI slower and more selective, whereas a lower value (e.g., 0.5) will make it very fast and prone to more frequent fluctuations.

What is the difference between this and a regular RSI? The Laguerre RSI uses a different mathematical transform that allows it to react faster to price changes while maintaining a smoother appearance than a standard RSI, which often requires a longer lookback period to achieve similar smoothness.

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