Constance Brown Composite Index & RSI+Avgs

The Constance Brown Composite Index & RSI+Avgs indicator is a technical analysis tool designed to identify divergence failures within the RSI and highlight horizontal support levels by removing normalization range restrictions.

Usage

The Usage section focuses on interpreting the Composite Index in conjunction with standard RSI oscillators to identify market shifts that standard momentum indicators might miss.

• Divergence Analysis: The Composite Index is primarily used to spot "divergence failures." When the RSI fails to show a clear divergence but price action suggests a reversal, the Composite Index often reveals the underlying momentum shift because it is not bound by the 0-100 range.
• Trend Confirmation: Use the Fast and Slow Moving Averages (MAs) applied to the Composite Index to determine trend direction. A crossover of the Composite Index above its MAs can signal bullish momentum, while a cross below can signal bearish momentum.
• Horizontal Levels: Unlike the RSI, the Composite Index can define significant horizontal support and resistance levels that persist over longer periods, providing clear structural anchors for traders.

Details

The Composite Index was developed by Constance Brown (as detailed in "Technical Analysis for Trading Professionals") to address the limitations of the Relative Strength Index (RSI). Specifically, the RSI can become "pinned" at extreme levels (0 or 100) during strong trends, losing its ability to show momentum changes.

The Composite Index overcomes this by:

1. Removing Normalization: It does not use the standard RSI 0-100 scale, allowing the value to expand freely.
2. Embedded Momentum: It incorporates a momentum calculation (difference between current RSI and RSI n periods ago) combined with a Short-Term SMA of a short-period RSI.
3. Overlaying Averages: By applying a Fast SMA (13-period) and a Slow SMA (33-period) to the index, it provides a smoother framework for trend following within the momentum oscillator itself.

Settings

• Source: Determines the price data used for the calculations (default is Close).
• RSI Length: The lookback period for the primary RSI calculation.
• RSI Momentum Length: The lookback period used to calculate the change (momentum) in the RSI.
• RSI MA Length: The lookback period for the short-term RSI used within the index formula.
• SMA Length: The length of the Simple Moving Average applied to the short-term RSI.
• Fast MA Length: The period for the fast signal line applied to the Composite Index.
• Slow MA Length: The period for the slow signal line applied to the Composite Index.

FAQ

How do I use the Composite Index with the RSI?

Traders typically look for instances where the Composite Index makes a new high or low while the RSI remains trapped or fails to confirm the move. This "divergence" between the two indicators can signal a potent trend continuation or reversal.

What are the default Moving Average periods?

The indicator uses a 13-period Fast SMA and a 33-period Slow SMA by default, which are the standard settings recommended for this specific index.

How can I access this tool?

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