Rocket RSI

The Rocket RSI indicator provides a highly responsive, smoothed relative strength measurement designed to identify cyclical turning points and overbought/oversold conditions with minimal lag. By combining John Ehlers' Super Smoother Filter with the Fisher Transform, it offers a Gaussian probability distribution of price momentum, allowing traders to pinpoint trend exhaustions and reversals more effectively than a traditional RSI.

Usage

The Usage section describes how the script can be used to identify market extremes and momentum shifts. Traders can use the Rocket RSI to find high-probability entry and exit points based on the following:

• Extreme Reversals: When the indicator line crosses above the upper threshold (Overbought) or below the lower threshold (Oversold), the plot changes color, signaling potential exhaustion.
• Zero-Line Crosses: Crossings of the zero line can be used to confirm momentum shifts in the direction of the trend.
• Divergences: Comparing price action peaks and valleys with those of the Rocket RSI can reveal underlying strength or weakness not visible on the price chart.
• Normalization: By enabling normalization, the indicator values are scaled to a [-100, 100] range, making it easier to compare across different assets.

Details

The Rocket RSI is based on the work of John Ehlers, specifically from his article "RocketRSI - A Solid Propellant For Your Rocket Science Trading." Unlike the standard RSI which uses a simple or exponential moving average, this version utilizes a Super Smoother Filter (SSF) to remove unwanted noise while retaining the original data's phase.

The process involves calculating the momentum of a half-dominant cycle, smoothing it via a 2-pole or 3-pole SSF, and then applying a Fisher Transform. The Fisher Transform is crucial as it converts the distribution of price data into a Gaussian (Normal) distribution, which makes the peaks and valleys much sharper and more distinct, facilitating the identification of overbought and oversold levels.

Settings

• RSI Length: The lookback period used for the momentum and accumulation calculations.
• Super Smoother Filter Poles: Choose between 2 or 3 poles for the smoothing filter; 3 poles provide more aggressive noise reduction but may introduce slight lag.
• Super Smoother Filter Length: The period used for the smoothing filter calculation.
• Overbought / Oversold Level: The threshold for identifying extreme market conditions (standard default is 2.0).
• Apply Normalization to [-100, 100] values?: If enabled, the indicator output is scaled to a fixed range.
• Source: The price data input (Close, Open, High, Low, etc.) used for the calculations.

FAQ

How do I interpret the color changes on the Rocket RSI?

The color changes indicate that the indicator has exceeded the user-defined Overbought or Oversold levels, suggesting that the current momentum may be overextended and a reversal or retracement could be imminent.

What is the advantage of using the Fisher Transform in this indicator?

The Fisher Transform makes the turning points much clearer by squaring the distribution of the values, causing the indicator to stay at extreme levels for a shorter duration and creating sharper peaks.

How can I access the Rocket RSI?

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