Better RSI with bullish / bearish market cycle indicator

The Better RSI with bullish / bearish market cycle indicator provides an enhanced version of the Relative Strength Index by integrating a trend-following market cycle mechanism based on overbought and oversold thresholds.

Usage

The indicator can be used to identify trend exhaustion and subsequent market cycles. It displays a standard RSI line that changes color to red when entering extreme overbought (>70) or oversold (<30) territories, signaling potential reversals or strong momentum.

The market cycle is visualized via a color-changing line at the midpoint (level 50):

• Bullish Cycle (Green): Triggered when the RSI enters the overbought zone (>69). The cycle remains bullish until the RSI falls below 40.
• Bearish Cycle (Red): Triggered when the RSI enters the oversold zone (<31). The cycle remains bearish until the RSI rises above 60.
• Neutral Cycle (White): Occurs when the RSI crosses the exit thresholds (40 for bullish, 60 for bearish) without reaching the opposite extreme.

Traders can use these cycles to filter entries, staying long during bullish phases and short during bearish phases, while exercising caution during neutral periods.

Details

The script builds upon the traditional RSI formula by implementing a state-machine logic to track market cycles. Unlike standard RSI oscillators that only show instantaneous momentum, this tool "remembers" the last extreme state reached. This prevents premature exits during strong trends where the RSI might dip slightly but hasn't fully reversed the macro trend direction. The addition of levels at 20, 40, 60, and 80 provides more granular reference points for price action analysis compared to the standard 30/70 levels.

Settings

• Period: Determines the lookback period for the RSI calculation (default is 14).
• Source: The price data used for the calculation (default is close).
• Show cycler?: Toggles the visibility of the central cycle indicator line.
• Cycler level on plot: Adjusts the vertical position of the cycle line on the indicator pane.

FAQ

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

The RSI line itself remains the foreground color during normal oscillations but highlights in red when price reaches overbought or oversold extremes, alerting you to potential exhaustion.

What is the difference between the levels and the cycler?

The levels (20, 30, 40, 50, 60, 70, 80) serve as static visual references for momentum, while the cycler is a dynamic trend filter that changes color based on the most recent extreme reached by the RSI.

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.