Volume-Weighted RSI

The Volume-Weighted RSI indicator integrates volume into the traditional Relative Strength Index (RSI) calculation to help traders visualize volume-driven price momentum. By weighting price changes with the square of volume changes, the tool aims to provide a leading perspective on market strength, where rapid volume increases amplify the RSI movement.

Usage

This tool can be used to identify trend exhaustion, momentum shifts, and periods of abnormal market activity.

• Momentum Tracking: If price and volume decrease rapidly together, the Volume-Weighted RSI falls sharply. Conversely, if both increase, the indicator rises significantly.
• Abnormal Activity Symbols: The script plots markers to highlight unusual volatility or volume spikes:
  • Green Cross: Indicates abnormal upward price movement.
  • Red Cross: Indicates abnormal downward price movement.
  • Green Circle: Indicates abnormal positive volume.
  • Red Circle: Indicates abnormal negative volume.
• Combined Signals: A green background bar appears when both price and volume show abnormal positive activity, while a red bar signifies both are abnormally negative.
• Signal Line: An optional Signal MA is provided to identify crossovers for smoother trend confirmation.

Details

The Volume-Weighted RSI is constructed by taking the product of price change and volume change. Specifically, it calculates the square root of these products to normalize the input for the RMA (Relative Moving Average) used in the standard RSI formula. This approach ensures that price movements occurring on high relative volume have a much greater impact on the oscillator's value than those on thin volume.

Settings

Base Inputs

• Length: The lookback period for the RSI calculation.
• Source: The price data used for the calculation (default is Close).
• Plot Volume-weighted RSI: Toggles the visibility of the primary oscillator.

Signal

• Use Signal: Enables or disables the Signal MA line.
• Signal Length: Sets the period for the Signal MA calculation.

Abnormal Activity

• Plot Abnormal Activity: Toggles the display of crosses, circles, and background highlights.
• SD Multiple: Controls the sensitivity for "abnormal" detection using standard deviations. Higher values result in fewer, more significant signals.

Style

• Overbought/Oversold: Customizable levels and colors for the threshold lines and background fills.
• Bar Colors: Enables or disables gradient candle coloring based on the indicator's value.

FAQ

How do I interpret the Volume-Weighted RSI compared to standard RSI?

While the standard RSI only looks at price change, this version requires volume confirmation to move significantly. This can help filter out "fakeout" price movements that occur on low volume.

What is the "SD Multiple" used for?

The SD Multiple determines the threshold for abnormal activity markers. It calculates a standard deviation of volume and price changes; signals are only plotted when the change exceeds the average by the specified multiple.

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.