Missile RSI (RSI of momentum w/ Dominant Cycle length + Fisher)

The Missile RSI indicator is a predictive momentum tool that identifies statistically unlikely price explosions and cycle shifts to pinpoint potential trend reversals or exit points. By combining Ehlers' cycle processing techniques with momentum-based RSI and the Fisher Transform, it highlights high-probability exhaustion zones.

Usage

The indicator is primarily used to identify overextended market conditions and potential trend exhaustion. Traders can use the following methods:

• Overbought/Oversold Reversals: When the Fisher RSI crosses the upper (Overbought) or lower (Oversold) thresholds, it indicates a statistically unlikely momentum event, suggesting a possible reversal.
• Divergences: Look for discrepancies between price action and the Fisher RSI peaks/valleys to identify weakening momentum that may not be visible on standard price charts.
• Directional Bias: While designed for extremes, the slope and color of the signal line can be used to gauge the immediate momentum direction.

Details

The Missile RSI utilizes a Homodyne Discriminator to determine the dominant cycle period of the market dynamically. This period is then used to calculate an RSI of momentum, which is processed through an Ehlers Roofing Filter to remove unwanted noise and low-frequency components. Finally, a Fisher Transform is applied to the result. This transform alters the probability distribution of the data, turning a typical bimodal distribution into a Gaussian-like distribution, which makes extreme price movements and momentum shifts much easier to identify as "missile-like" spikes.

Settings

• Apply Double Smoothing: When enabled, applies an additional Super Smoother filter to the roofing filter output to further reduce high-frequency noise.
• Over Bought: Sets the upper threshold level (default is 2.0) for identifying extreme positive momentum.
• Over Sold: Sets the lower threshold level (default is -2.0) for identifying extreme negative momentum.
• Source: Determines the input data used for calculations (default is Close).
• Roofing Band Upper: Defines the high-pass cutoff frequency to remove low-frequency trend components.
• Roofing Band Lower: Defines the low-pass cutoff frequency for the Super Smoother component to filter out noise.

FAQ

How do I interpret the colors of the line?

The line changes color based on the immediate slope of the Fisher Transform: green indicates rising momentum, while red indicates falling momentum.

What is the purpose of the Fisher Transform in this script?

The Fisher Transform makes the peaks and valleys of the indicator much more pronounced, allowing traders to clearly see when momentum has reached a statistical extreme.

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.