Stochastic Connors RSI

The Stochastic Connors RSI indicator combines the momentum-based Connors RSI (CRSI) with a Stochastic oscillator framework to identify overbought and oversold conditions with enhanced sensitivity. By applying the Stochastic calculation to the CRSI value, this tool aims to provide more precise timing for mean-reversion setups compared to using either indicator in isolation.

Usage

The Usage section describes how the script can be used to identify potential market reversals and momentum shifts.

• Overbought/Oversold Identification: Traders can monitor the %K (blue line) and %D (main color line) levels relative to the 80/20 and 70/30 bands. Readings above 80 often suggest an overextended market, while readings below 20 suggest an oversold state.
• Crossover Signals: Bullish signals occur when the %K line crosses above the %D line, especially within the lower extremes. Conversely, bearish signals are identified when the %K line crosses below the %D line in the upper extremes.
• Trend Confirmation: The indicator can be used to gauge the strength of a current trend by observing how long the lines remain pinned near the extreme thresholds.

Details

The Stochastic Connors RSI is constructed by first calculating the Connors RSI, which is a composite of three components:

1. Price RSI: A standard RSI calculation based on price changes.
2. Streak RSI: An RSI calculated based on the length of the current up or down "streak" in prices.
3. Percent Rank: A calculation of the current price change relative to historical price changes over a lookback period.

The indicator then takes this composite CRSI value and applies the Stochastic formula to it, smoothing the results with moving averages (%K and %D). This transformation normalizes the CRSI output, making it easier to visualize cyclical turns in price action.

Settings

• Stochastic Length: The lookback period used for the Stochastic calculation applied to the CRSI.
• K: The period for smoothing the %K line.
• D: The period for smoothing the %D line (a moving average of %K).
• RSI Length: The period used for the primary RSI component of the Connors RSI.
• Updown RSI Length: The period used for the streak-based RSI component.
• ROC Length: The lookback period used to determine the Percent Rank of the Rate of Change.
• RSI Source: The price source used for the calculations (e.g., Close, Open, High, Low).

FAQ

How do I interpret the different background bands? The background highlights represent different intensity zones for momentum. The 80/20 bands represent traditional extreme thresholds, while the 70/30 bands provide a secondary level of interest for standard momentum shifts.

Can I use this on any timeframe? Yes, the Stochastic Connors RSI is adaptable to various timeframes, though it is particularly popular in daily and swing trading strategies for identifying short-term pullbacks.

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