Trend Friendly RSI

The Trend Friendly RSI indicator adapts standard momentum calculations to current market trends, providing more realistic entry signals by accounting for price direction rather than treating all movement as sideways.

Usage

The Trend Friendly RSI is primarily used to identify entry points for long-term investments and spot trading. Unlike a traditional RSI, which can stay overbought or oversold during strong trends, this tool subtracts trend momentum from current price momentum to find suitable reaction points within a trending market.

• Bullish Signals: A green background and bar color appear when the indicator crosses over its own rate of change while below the 30 level, provided the underlying trend is upward.
• Bearish Signals: A red background and bar color appear when the indicator crosses under its own rate of change while above the 70 level, provided the underlying trend is downward.

It is recommended to use this indicator on assets where a clear trend has been established through fundamental analysis, as the oscillator is designed to fail during strictly horizontal or range-bound markets.

Details

The script utilizes a custom Centered Reflection (CR) function to estimate the underlying trend momentum. It calculates a theoretical price path based on historical values and compares the current close against this trend-adjusted baseline. By normalizing the difference using a square root of the relative range, the indicator produces an oscillator that fluctuates around a midpoint of 50. The line color dynamically changes (green for bullish, red for bearish) based on the slope of the CR value, ensuring users stay aligned with the trend direction.

Settings

• Source: The price input used for calculations (default is HLC3).
• Length: The lookback period used for the trend estimation and momentum calculations.
• Line Width: Adjusts the visual thickness of the indicator line on the chart.

FAQ

How do I interpret the color changes?

The indicator line turns green when the underlying trend momentum is positive and red when it is negative. Signals are only generated when the indicator momentum aligns with this color change.

Why doesn't it work in sideways markets?

The Trend Friendly RSI is specifically designed to filter out "false" overbought/oversold signals during trends. In a horizontal market, the trend subtraction becomes negligible, making standard oscillators more effective.

How can I access this tool?

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