RSI LOESS

The RSI LOESS indicator provides a volatility-normalized momentum oscillator that combines standard deviation adjustments with adaptive smoothing to filter market noise and identify trend strength.

Usage

The Usage section describes how the script can be used to identify market momentum and potential trend reversals. The indicator features four distinct color-coded zones that categorize price action based on its current strength:

• Oversold (Red, < 40): Indicates weak momentum where the trend may be nearing exhaustion or continuing a strong move lower.
• Bearish (Blue, 40-50): Suggests negative momentum below the neutral threshold, favoring cautious or short positioning.
• Bullish (Green, 50-60): Indicates positive momentum building above the neutral threshold, often signaling early trend potential.
• Overbought (Orange, > 60): Represents strong positive momentum, often considered the optimal area for trend-following before potential overextension.

Traders typically look for long entries when the indicator transitions from the Red zone into the Blue or Green zones. Conversely, short entries are considered when the line moves from the Green or Orange zones back down into the Blue or Red zones. Because the zone thresholds (40, 50, 60) are more compressed than traditional RSI levels (30, 70), this tool provides earlier signals for trend identification.

Details

The RSI LOESS utilizes a multi-step transformation process to improve the reliability of momentum signals. It first calculates a standard RSI, then subtracts its standard deviation to create a volatility-adjusted baseline. This adjustment ensures the indicator adapts to changing market volatility rather than relying on static price changes.

The resulting value is then processed through a LOESS (Locally Estimated Scatterplot Smoothing) weighted moving average. This smoothing algorithm allows for customizable weighting at the edges and the center of the lookback window. By adjusting these weights, the script can prioritize recent data or center-weighted stability to reduce lag while minimizing the impact of outliers. Finally, a binary scoring system is applied, assigning a +1 or -1 value based on whether the indicator is above or below the 49 threshold.

Settings

𝗥𝗦𝗜

• LENGTH: The period used for the base RSI calculation. Larger values result in a slower, smoother oscillator.
• SD LENGTH: The lookback period for the standard deviation calculation used in volatility normalization.
• LOESS Smoothing Length: The number of bars used for the weighted moving average smoothing. Higher values increase noise reduction but introduce more lag.
• Edge Weight (Old/New): Controls the weight applied to the oldest and newest values in the LOESS window. Higher values emphasize the most recent and the oldest data points.
• Center Weight: Controls the weight applied to the middle values in the smoothing window. Higher values emphasize the center of the calculation period.

FAQ

How do I interpret the data table on the chart? The real-time data table displays the current asset ticker, the numerical RSI LOESS value, the directional score (+1 for bullish, -1 for bearish), and the current zone classification for quick reference.

What is the significance of the 49 threshold? The 49 level serves as the pivot point for the internal scoring system. Values above 49 contribute to a positive directional bias, while values below 49 suggest a negative bias.

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.