L3 MACD and RSI Fusion

The L3 MACD and RSI Fusion indicator is a hybrid technical analysis tool that combines momentum and trend-following metrics to identify potential market reversals and trend continuations. By merging the Moving Average Convergence Divergence (MACD) and the Relative Strength Index (RSI) into a single oscillator, this tool provides a unified view of market strength and direction, helping traders filter out noise and pinpoint high-probability entry and exit points.

Usage

The indicator consists of the "Simple Fusion" line, a "Lag" line, and a volume-weighted histogram. Traders can interpret the signals as follows:

• Crossovers: A buy signal is generated when the Simple Fusion line crosses above the Lag line (marked with a 'B' label). Conversely, a sell signal is generated when it crosses below the Lag line (marked with an 'S' label).
• Histogram Analysis: The histogram reflects the momentum difference between the fusion and lag lines. Bright green or red columns indicate strengthening momentum, while faded colors suggest weakening momentum.
• Divergences: The script automatically detects and labels Regular and Hidden divergences between the oscillator and price action. These are key for identifying potential exhaustion in the current trend or trend continuation.

Details

The "Simple Fusion" calculation is derived from the difference between a Fast EMA and a Slow EMA, which is then scaled and combined with a normalized RSI value. Specifically, it uses the formula: (EMA_Fast - EMA_Slow) * 1.2 + RSI / 50. The "Lag" line serves as a delayed baseline, typically tracking the Fusion value from two periods prior. This creates a crossover mechanism that is more responsive than traditional moving average crossovers while maintaining the smoothing benefits of the RSI component.

Settings

Indicator Settings

• Input Source: Determines the price data used for calculations (e.g., Close, Open, HL2).
• MACD Fast Length: The period for the shorter exponential moving average.
• MACD Slow Length: The period for the longer exponential moving average.
• RSI Length: The lookback period for the Relative Strength Index calculation.
• Histogram Scaler: Adjusts the visual height and sensitivity of the histogram bars.

Divergence Settings

• Pivot Lookback Right/Left: Sets the number of bars required to confirm a pivot point for divergence detection.
• Max/Min of Lookback Range: Defines the search window (in bars) for identifying previous peaks or troughs to compare against current pivots.

Divergence Displays

• Plot Bullish/Bearish: Toggles the visibility of regular divergence lines and labels.
• Plot Hidden Bullish/Bearish: Toggles the visibility of hidden divergence lines and labels.

FAQ

How do I interpret the 'B' and 'S' labels?

The 'B' label indicates a bullish crossover (Simple Fusion over Lag), suggesting a potential long entry. The 'S' label indicates a bearish crossover, suggesting a potential short entry or exit.

What is the difference between regular and hidden divergence in this script?

Regular divergence often signals a potential trend reversal, while hidden divergence typically suggests a trend continuation. Both are highlighted with labels like "Bull", "Bear", "H Bull", or "H Bear".

How can I access L3 MACD and RSI Fusion?

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