Volume Weighted RSI

The Volume Weighted RSI indicator combines Volume-Weighted Average Price (VWAP) and the Relative Strength Index (RSI) to create a volume-sensitive momentum oscillator that identifies overbought/oversold conditions and automated price-oscillator divergences.

Usage

The Usage section describes how the script can be used to analyze market momentum with volume sensitivity. By applying RSI to VWAP rather than raw price, the oscillator gives more weight to price movements occurring on high volume, theoretically providing a more robust momentum signal.

• Identifying Extremes: Users can monitor the oscillator as it enters overbought (default 80) or oversold (default 20) zones. The line changes color to red (overbought) or green (oversold) to visually signal these conditions.
• Divergence Analysis: The script automatically identifies regular divergences. A Bearish Divergence occurs when price makes a higher high while the oscillator makes a lower high. A Bullish Divergence occurs when price makes a lower low while the oscillator makes a higher low.
• Pivot Point Tracking: Local peaks and troughs (pivots) are marked on the oscillator, helping traders identify significant structural turns in momentum.
• Confirmation: These signals are best used alongside other technical analysis tools, such as trendline breaks or candlestick patterns, to confirm potential reversals.

Details

The script operates by first calculating the VWAP of the closing price and then applying a standard RSI calculation to that result. The divergence detection logic utilizes a loopback period (default 90 bars) to find local extremes in both price action and the volume-weighted momentum.

When a divergence or pivot is confirmed, labels are plotted on the chart. To ensure visual clarity, the script includes logic for "Short Labels" and "Hide Pivots." Background highlights are also triggered during divergence events to draw the user's attention to potential trend exhaustion.

Settings

• RSI LENGTH: Sets the lookback period for the RSI calculation (default: 17).
• RSI OVERBOUGHT: The threshold level above which the oscillator is considered overbought (default: 80).
• RSI OVERSOLD: The threshold level below which the oscillator is considered oversold (default: 20).
• RSI VOLUME WEIGHTED AVERAGE PRICE: Toggles the volume-weighting logic (default: true).
• HIDE PIVOTS: When enabled, removes the pivot point markers from the oscillator display.
• SHORT LABELS: When enabled, replaces text labels like "BEAR" or "BULL" with simple arrow symbols to reduce chart clutter.
• DIV LOOPBACK PERIOD (BARs): Determines the number of historical bars the script analyzes to find peaks and troughs for divergence detection.

FAQ

How do I interpret the colors on the oscillator? The oscillator turns red when it exceeds the overbought level, green when it falls below the oversold level, and remains cyan during neutral conditions.

Does this indicator repaint historical signals? The script uses pivot detection logic that requires a confirmation bar. While labels appear once the condition is met and do not change their historical position, they may appear with a slight lag (typically 1-2 bars) to ensure the pivot is valid.

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