RSI-Stochastic Hybrid v2

The RSI-Stochastic Hybrid v2 indicator merges the Relative Strength Index (RSI) and the Stochastic Oscillator into a single, smoothed composite line to provide a versatile view of momentum and trend strength.

Usage

The RSI-Stochastic Hybrid v2 is designed to provide a smoother representation of market momentum compared to using individual oscillators. Traders can use it to identify trend direction and potential exhaustion points.

A common strategy, as suggested by Greg Morris, involves trend following:

• Buying: Consider a long position when the hybrid line reaches the overbought level (80), indicating strong upward momentum.
• Selling/Exiting: Consider closing the position or selling when the line falls back below the midpoint (50).

Additionally, the indicator includes an integrated EMA signal line. Crossovers between the hybrid line and the EMA can serve as entry or exit signals, with a crossover above the EMA suggesting bullish momentum and a crossunder suggesting bearish momentum.

Details

This script calculates the RSI and Stochastic Oscillator independently based on user-defined lengths. Each component is then smoothed using an Exponential Moving Average (EMA). The "v2" update specifically introduced this optional exponential averaging to reduce noise; for example, setting the Stochastic smoothing to 3 mimics the transition from %K to %D.

The final output is a weighted average of these two smoothed indicators. The weighting is determined by the "Percent RSI" input, allowing users to prioritize one oscillator over the other depending on market conditions or personal preference.

Settings

• RSI Length: Determines the lookback period for the RSI calculation.
• RSI Smoothing: Sets the length of the EMA used to smooth the RSI component.
• Stochastic Length: Determines the lookback period for the Stochastic Oscillator.
• Stoch Smoothing: Sets the length of the EMA used to smooth the Stochastic component.
• Percent RSI: Adjusts the weighting between RSI and Stochastic. A value of 50 results in an equal mix; higher values favor RSI, while lower values favor Stochastic.
• EMA (Signal) Length: Controls the length of the signal line EMA applied to the final hybrid calculation.

FAQ

How do I interpret the weighting between RSI and Stochastic?

The "Percent RSI" setting acts as a slider. If set to 100, the indicator displays only the smoothed RSI. If set to 0, it displays only the smoothed Stochastic. At 50, it provides a perfect mathematical average of both.

What do the overbought and oversold levels represent?

The levels at 80 and 20 function similarly to standard oscillators, marking zones where price momentum may be overextended. However, in a trend-following context, reaching the 80 level can also confirm strong trend strength.

How can I access RSI-Stochastic Hybrid v2?

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