Adjusted RSI

The Adjusted RSI indicator provides a highly refined momentum oscillator that utilizes double normalization, adaptive exponential smoothing, and range compression to deliver a smoother and more structurally consistent representation of market strength. This tool is designed to filter out the high-frequency noise typically found in standard RSI readings, making it easier to identify significant momentum shifts and trend directions.

Usage

The Usage section highlights how traders can interpret the oscillator for trend-following and momentum analysis:

• Bullish Momentum: Positive values above the zero line indicate bullish pressure. When the line is rising and colored green, it suggests strengthening upside momentum.
• Bearish Momentum: Negative values below the zero line indicate bearish pressure. A falling red line suggests strengthening downside momentum.
• Momentum Shifts: Changes in the slope (turning from falling to rising or vice versa) serve as early warnings for momentum transitions.
• Divergences: Discrepancies between price action and the oscillator's peaks or troughs can highlight potential trend exhaustion and reversals.

The indicator is particularly effective when used alongside trend filters like moving averages or higher-timeframe confirmations to validate signals.

Details

The Adjusted RSI processes raw price data through several layers of refinement to ensure stability across different market regimes:

• Re-Centering: The standard RSI is shifted by -50 to center it at zero, creating a clear distinction between bullish and bearish zones.
• Range Compression: To prevent outliers from distorting the normalization process, RSI values are clipped between -10 and +10.
• Double Normalization: The script applies Min-Max scaling twice over a lookback window, ensuring the indicator adapts dynamically to changes in volatility.
• Adaptive Smoothing: A dual-pass exponential smoothing technique is used to refine the curve further, allowing it to react to genuine shifts while ignoring minor price fluctuations.

Settings

• RSI Length: Determines the lookback period for the initial Relative Strength Index calculation.
• RSI Smoothing Length: Controls the SMA smoothing applied to the initial re-centered RSI values.
• Smoothing Length: Sets the lookback window for both the first and second normalization (Min-Max scaling) passes.
• Smoothing Factor: Adjusts the responsiveness of the adaptive exponential smoothing. Lower values produce a smoother, slower curve, while higher values increase sensitivity to recent price changes.

FAQ

How do I use the Adjusted RSI for trend confirmation? You can look for the oscillator to cross and hold above the zero line for bullish confirmation or below the zero line for bearish confirmation, ideally aligned with your primary trend filter.

What does it mean when the color of the line changes? The color change indicates a shift in the slope of the oscillator. A green line means momentum is increasing, while a red line means momentum is decreasing.

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