Bollinger Bands of RSI

The Bollinger Bands of RSI indicator applies volatility bands to the Relative Strength Index (RSI), providing a multi-layered momentum analysis tool that helps traders identify overextended market conditions and trend shifts through dynamic volatility envelopes.

Usage

The indicator can be used to identify potential trend reversals and momentum exhaustion. Traders typically look for the RSI line to interact with the Bollinger Bands to find high-probability signals. For example, if the RSI crosses above the upper Bollinger Band, it may indicate an overbought condition relative to recent momentum. Conversely, crossing below the lower band suggests an oversold state.

The inclusion of an 8-period EMA of the RSI provides a secondary signal line. When the RSI crosses its own EMA, it can serve as a short-term trend confirmation signal.

Details

The script calculates a standard Relative Strength Index first. It then applies a Simple Moving Average (SMA) to that RSI value to create the "Basis" line. The volatility bands (Upper and Lower) are calculated by adding and subtracting a specified number of standard deviations from this Basis line.

Additionally, an Exponential Moving Average (EMA) is calculated based on the RSI values. This allows for a comparison between the raw RSI, its short-term trend (EMA), and its medium-term volatility range (Bollinger Bands).

Settings

• BB Length: Determines the period used to calculate the Bollinger Bands' SMA basis and standard deviation (default is 20).
• RSI Length: Sets the lookback period for the underlying RSI calculation (default is 14).
• BB Multiplier: Controls the width of the bands by setting the number of standard deviations (default is 2.0).
• EMA Length: Adjusts the period for the RSI's Exponential Moving Average signal line (default is 8).

FAQ

How do I interpret the RSI EMA?

The RSI EMA acts as a trigger line; when the RSI is above its EMA, momentum is generally considered bullish in the short term, and bearish when below.

What are the horizontal lines at 70 and 30?

These are standard RSI reference levels. The 70 level traditionally indicates overbought territory, while 30 indicates oversold territory, providing context alongside the dynamic Bollinger Bands.

How can I access Bollinger Bands of RSI?

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