RSI of ROC: The indicator initially calculates RSI (Relative Strength Index) on ROC (Rate of Change). This is a method that tracks the rate of price change (ROC) over a certain period and applies it to the RSI calculation.
Adaptive RSI: The code then calculates the RSI for all periods between the minimum and maximum RSI lengths. It takes the average of these calculations and names it as avg_rsi66. In addition, it checks whether each RSI value exceeds the determined overbought and oversold limits.
Signal Triggers: If both RSI of ROC and avg_rsi66 are above or below the specified overbought or oversold levels and the difference between these two values is less than the specified threshold value (Extremities Sensitivity), a signal is triggered. In addition, the color of the bar is also checked: An overbought (sell) signal is triggered for a red bar and an oversold (buy) signal is triggered for a green bar.
Signal Visualization: Signals are shown on the chart at appropriate places with "Sell" or "Buy" shapes. Also, each of these conditions is defined as an alert condition.
The general purpose of this indicator is to determine the turning points of the market. Overbought and oversold signals are based on the idea that the price may turn from these areas. That is, a "Sell" signal indicates a turning point where the price may start to fall, while a "Buy" signal indicates a turning point where the price may start to rise.
These types of indicators usually have some weak points:
False Signals: Like any kind of technical analysis indicator, this indicator can also give false signals. That is, you may get a "Buy" or "Sell" signal but the price may not move in the expected direction.
Market Conditions: This indicator may perform better under certain market conditions. For example, a trend-following indicator usually works well in trending markets, but can be misleading in range-bound markets. This indicator too can perform better or worse in a particular market situation.
Parameter Selection: The choice of the parameters of the indicator (ROC and RSI lengths, overbought/oversold levels, etc.) can significantly affect the quality of the indicator signals. Parameters should be optimized for various assets and time frames.
In conclusion, it would be better to use this indicator not as a standalone trading system, but in conjunction with other technical analysis tools or fundamental analysis. Also, it is always beneficial to test a new trading strategy on past data or on a demo account before trading with real money."
Stay tuned for more of my original strategies :)
In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in a publication is governed by House Rules. You can favorite it to use it on a chart.