RSI Candlestick Oscillator

The RSI Candlestick Oscillator innovatively presents the classic Relative Strength Index (RSI) as candlesticks. By referencing OHLC data, this indicator determines the position of each candlestick point relative to the current RSI Value, offering a more precise depiction of the Open, High, Low, and Close values within the context of RSI. This advanced visualization helps traders by identifying Divergences from the RSI candlestick highs and lows and displaying them over the price on the chart.

Trading the RSI Candlestick Oscillator: A Comprehensive Guide

Translating candlesticks into the RSI oscillator is a concept explored numerous times, but this indicator is distinctive due to its unique approach in determining candlestick OHLC values. When compared with alternative RSI candlestick indicators, this one demonstrates a clearer and definitive correlation with the on-chart price action, providing traders a robust tool for analysis.

Typically, RSI is a single, continuous value based on the chart's close price. Incorporating high, low, and open values into the oscillator allows for a more detailed view of the price action within intrabar movements. This provides traders with extra insight into potential price movement scenarios.

Traders can now interpret RSI level interactions through various forms, such as full-bodied breakouts or simple wick tests. Each type can offer fresh insights alongside RSI observations. Below is an illustration of wick interactions and full-bodied interactions:

Thanks to the candlestick display, detecting divergences is straightforward. The candlesticks portraying RSI visually align with the chart candlesticks, making it obvious when the RSI and price are diverging, which enhances the trader's ability to identify potential price action shifts efficiently.

Divergences are not only marked on the RSI oscillator but also overlay on the price chart for clearer comprehension:

Understanding Divergence Filtering

Thanks to the candlestick methods generating high and low RSI values, identifying price divergences becomes more intuitive, since these points generally appear more noticeable than merely observing the (close) RSI value.

The indicator enumerates different types of divergence:

• Bullish Divergence
• Bearish Divergence
• Hidden Bullish Divergence
• Hidden Bearish Divergence

Not every detected divergence carries significant importance. The Divergence Filter works by disregarding divergences that do not traverse beyond the RSI's upper or lower limits. While this filter does not supplant sound judgment, it aids in directing focus to RSI extremes for potential reversal alerts.

Detailed Breakdown of Features

To achieve a display that closely mimics price action while aligning with RSI, appropriate scaling is a critical component.

Summary of the Scaling Process:

• Identify a range on Price and RSI
• Equate them to create a scaling factor
• Utilize the scaling factor to find RSI's "Price equivalent" Upper, Lower, & Midpoints on the Chart
• Apply these prices (particularly the RSI Mid) to assess the OHLC value distances
• Convert these differences back to the RSI Oscillator, anchoring the OHLC values as relative to the anchor (RSI Mid)

Exploring the RSI Channel

For a clearer understanding, the indicator provides an option to display the RSI Channel on the chart, aiding in visualizing where scaled RSI values align with the price.

Upon examining the RSI channel, a trader will notice that the price movement within the channel mirrors the RSI Oscillator's movements below, since they're essentially visual representations of the same data on different scales.

Adjusting the Open Scaling for Precision

Though the scaling model provides a near-accurate view of actual price bars' positioning in the RSI oscillator, it is primarily tailored for a singular purpose. It does not perfect price candle displays on the RSI oscillator. The major area of discrepancy is often in the opening of each candle.

To address this, a setting is included to adjust each RSI candle's opening for better accuracy corresponding to the chart's price candles. This positions the current bar's opening RSI candlestick correctly relative to the price's open versus the prior closing price:

Fine-Tuning Settings for Optimal Use

RSI Candles

• RSI Length: Determine the Length for the RSI Oscillator.
• Overbought/Oversold Levels: Define the Overbought and Oversold thresholds for RSI.
• Scale Open for Chart Precision: Adjust the scale for each candlestick bar's open to represent chart candlesticks more accurately.

Divergence Management

• Show on Chart: Opt to show divergence lines both on the chart and the Oscillator.
• Divergence Length: Establish the pivot width for detecting divergence using standard Fractal Pivot Detection.
• Divergence Style: Customize color and line style for both Regular and Hidden divergences, and toggle their visibility.
• Divergence Filter: Enable/disable the filtering of divergences as described above.

Displaying RSI Channel

• Toggle: Enable the RSI Channel on the Chart.
• Color: Modify the color of the RSI Channel.

FAQs on RSI Candlestick Oscillator

Q1: How do I access the RSI Candlestick Oscillator?

A1: You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.

Q2: What types of divergence can the indicator detect?

A2: It identifies Bullish Divergence, Bearish Divergence, Hidden Bullish Divergence, and Hidden Bearish Divergence.

Q3: Can I customize the RSI levels?

A3: Yes, the indicator allows you to set Overbought and Oversold levels based on your trading strategy preference.