RSI + Composite Index

The RSI + Composite Index indicator combines a standard Relative Strength Index with Constance Brown's Composite Index to provide a more comprehensive view of market momentum and divergence.

Usage

The indicator is primarily used to identify hidden and regular divergences between the price and the oscillator values. Traders can look for:

• Divergence Analysis: Compare price action against the Composite Index to find regular and hidden divergences that the standard RSI might miss.
• Signal Triggers: A common entry technique involves waiting for the Composite Index to cross over or under its internal moving averages (Trigger Lines) following a confirmed divergence.
• Trend Confirmation: The RSI 50 level can be used to determine the general trend direction, while the overbought and oversold levels act as filters for potential reversals.
• Trendline Breaks: Drawing trendlines directly on the RSI or Composite Index plots can provide early signals of momentum shifts.

Details

Developed by Constance Brown, the Composite Index was designed to address the perceived limitations of the standard RSI. While RSI is a momentum oscillator, it can sometimes fail to capture significant moves or generate false signals because it lacks an internal momentum calculation. The Composite Index solves this by embedding a momentum calculation (via a 9-period momentum of the RSI) within the formula. This results in an oscillator that is often more responsive and capable of revealing divergences that are not visible on a standard RSI alone.

Settings

• Enable RSI MAs: Toggles the visibility of the RSI's own moving averages (9-period SMA and 45-period EMA).
• RSI Length (Internal): The standard 14-period RSI used as the base calculation.
• Composite Index Components: The tool calculates the Composite Index using a combination of a 3-period SMA of a 3-period RSI and the 9-period momentum of the 14-period RSI.
• Trigger Lines: Includes a 13-period SMA (Fast) and a 33-period SMA (Slow) applied to the Composite Index for crossover signals.

FAQ

How do I use the RSI + Composite Index for trading?

You should look for divergences between the price and the Composite Index line. Once a divergence is identified, a crossover between the Composite Index and its Fast or Slow Trigger Lines can be used as an execution signal.

What is the difference between RSI and the Composite Index?

While RSI measures price velocity, the Composite Index adds a momentum calculation to the RSI itself. This allows the Composite Index to "lead" the RSI and identify market turns more accurately.

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.