RSI channel ob/os breakout

The RSI channel ob/os breakout indicator provides visual breakout signals by reverse engineering the Relative Strength Index (RSI) into price-based overbought and oversold levels. This tool allows traders to identify potential market reversals or momentum shifts directly on their price charts using dynamic channels.

Usage

The script plots two dynamic lines representing the overbought and oversold RSI levels converted into price values.

• Bullish Signal: Triggered when the price low (or the Wilder's MA filter) crosses under the lower oversold line. This suggests the market may be overextended to the downside.
• Bearish Signal: Triggered when the price high (or the Wilder's MA filter) crosses over the upper overbought line. This suggests the market may be overextended to the upside.

Traders can use these signals to identify potential entry points for mean reversion trades or to manage existing positions when price reaches these extreme thresholds.

Details

Unlike standard RSI which oscillates in a separate pane between 0 and 100, this script uses a reverse-engineered RSI calculation to project specific RSI levels (like 70 and 30) back onto the price chart. This creates a price-action-based channel.

The script also includes an implementation of Wilder’s Moving Average. When the filter is enabled, signals are generated based on the interaction between the Wilder MA and the RSI levels rather than using the raw high and low price points. This can help smooth out noise and provide more stable breakout signals.

Settings

• Overbought: Sets the RSI level to be used for the upper boundary (default is 70).
• Oversold: Sets the RSI level to be used for the lower boundary (default is 30).
• Source: Determines the price data used for the RSI calculation (typically 'close').
• Wilders Length: The lookback period for the Wilder’s Moving Average filter.
• Filter with Wilder MA On/Off: A toggle to determine whether signals are triggered by raw price (high/low) or the Wilder’s Moving Average.

FAQ

How do I use the Wilder's MA filter?

You can enable the "Filter with Wilder MA" setting in the indicator inputs. When active, signals will only trigger when the Wilder's Moving Average crosses the channel boundaries, which often results in fewer, more filtered signals.

What do the arrows on the chart signify?

Green arrows pointing up indicate a bullish breakout from the oversold level, while red arrows pointing down indicate a bearish breakout from the overbought level.

How can I access the RSI channel ob/os breakout?

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