RSI Convergence Divergence

The RSI Convergence Divergence indicator is a momentum-based oscillator that utilizes two Relative Strength Index (RSI) lines of different lengths to identify market convergence, divergence, and trend strength. By analyzing the relationship between fast and slow RSI components alongside multiple moving averages, the tool provides a comprehensive framework for extracting actionable signals from price action.

Usage

The indicator can be used to identify potential trend reversals and continuations through several methods:

• Zero-Line Crossings: Observe the signal moving average crossing above or below the zero line to identify simple convergence and divergence.
• Moving Average Crossovers: Monitor the interaction between the Simple Moving Average (SMA) and Double Exponential Moving Average (DEMA) applied to the average RSI.
• Threshold Confirmation: Combine convergence/divergence signals with overbought (OB) or oversold (OS) levels for higher-probability setups.
• Trend Bias: Use the Average Moving Average (average of SMA and DEMA) crossing the 50-level to determine the overall directional bias.
• Bar Coloring: The tool optionally colors price bars based on bullish (posCond) or bearish (negCond) logic involving threshold crossings and MA alignment.

Details

The RSI Convergence Divergence is inspired by the MACD but applies similar logic to RSI values instead of price-based EMAs. It calculates a "Fast RSI" and a "Slow RSI," then computes their difference (RSI Diff). A smoothing moving average is applied to this difference to create a signal line. Additionally, the tool calculates an "Average RSI" (the mean of fast and slow lengths), which is then processed through an SMA and a DEMA to provide secondary trend confirmation.

Settings

RSI Parameters

• Fast Length: Sets the period for the fast RSI calculation.
• Slow Length: Sets the period for the slow RSI calculation.
• Signal Smoothing: The period used to smooth the difference between the two RSIs.
• Atr Length / Sd Len: Parameters controlling the volatility-based bands around the signal line.
• Source: The price input used for calculations (default is Close).
• Threshold L/S: Level thresholds used for bullish and bearish condition filtering.

MA Settings

• MA Type: Choose the smoothing method for the signal line (DEMA, SMA, Bollinger Bands, EMA, etc.).
• Sma Len: The lookback period for the SMA applied to the Average RSI.
• Dema Len: The lookback period for the DEMA applied to the Average RSI.

Visualization

• Show SMA/DEMA/Average MA: Toggles the visibility of the various moving average components.
• Show Fast/Slow RSI: Toggles the visibility of the raw RSI lines.
• Overbought/Oversold Thresholds: Adjusts the levels and visibility of OB/OS horizontal lines.
• Colors: Customization options for bullish, bearish, and neutral visual states.

FAQ

How do I interpret the zero-line crossing?

A signal line crossing above zero indicates the fast RSI is gaining momentum relative to the slow RSI (bullish convergence), while a cross below zero indicates the opposite (bearish divergence).

What does the bar coloring represent?

Bar colors change when specific conditions are met, such as the signal line being above zero, the DEMA being above the SMA, and the average MA being above the defined threshold.

How can I access this indicator?

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