[E5 Trading] Advanced RSI

Jan 22, 2023

Advanced RSI Overview[\b]

• The traditional RSI momentum indicator measures the magnitude of price changes over a user-specified period to determine overbought and oversold conditions in the price of an asset.
  
• E5 Trading Advanced RSI adds several sophisticated features to enhance the analysis of RSI to detect early signs of trend reversals and continuations.
  
• Advanced capabilities include customizable fast and slow RSI moving averages, RSI Bollinger Bands, relative overbought and oversold signals, and regular and hidden divergences.
  
• These features provide traders with opportunities to identify confluence using other E5 Trading indicator suite signals and increase the probability of entering winning trades.
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  RSI Moving Averages[\b]
  
  • RSI moving average crossovers help determine momentum shifts in the overall trend, similar to price moving average crossovers.
    
  • Set the moving average type (default: EMA ), fast-moving RSI period (default: 3), and slow-moving RSI period (default: 5).
    
  • When the fast-moving RSI crosses above the slow-moving RSI, bullish. When the fast-moving RSI crosses under the slow-moving RSI, bearish.
    
  • The Moving Average Fill feature (default: On) colors the area between the fast-moving and slow-moving RSI lines with bullish and bearish momentum shading.
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    RSI Bollinger Bands[\b]
    
    • Like Bollinger Bands for price action, RSI Bollinger Bands can be used as moving oversold and overbought thresholds, which adjust with the RSI oscillator based on its volatility.
      
    • When RSI breaks out above the upper RSI Bollinger Band, the asset is overbought on a relative basis, given its price history.
      
    • When RSI breaks out below the lower RSI Bollinger Band, the asset is oversold on a relative basis.
      
    • Evaluating RSI on a relative basis is more reliable than evaluating RSI on an absolute basis with fixed 30/70 thresholds for oversold/overbought, which traditional RSI analysis relies on.
      
    • This is because rigid 30/70 thresholds are arbitrary rules-of-thumb that may (or may not) be relevant to current market conditions.
      
    • When RSI is riding the upper or lower Bollinger Bands and breaks towards the middle, this reversion to the mean (i.e., basis line) can signal that the trend may be reversing.
      
    • Toggle to turn on the basis (i.e., mean) line of the RSI Bollinger Bands.
      
    • The basis line can also be used as a support line when RSI values are above it or as a resistance line when RSI values are below it.
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      Relative Oversold | Overbought[\b]
      
      • Relative Oversold | Overbought signals (i.e., dots) provide the Advanced RSI trader with the means to identify trend reversal or continuation opportunities that most traders will miss.
        
      • Relative Oversold | Overbought signals reflect an adaptive approach that normalizes RSI data relative to the trend using RSI Bollinger Bands.
        
      • These signals improve the reliability of RSI oversold and overbought signals compared to traditional methods and eliminate the need to trade within the confines of fixed 30/70 RSI thresholds.
        
      • Signals will appear even when the standard RSI line may be far away from the generally accepted oversold and overbought thresholds (i.e., 30 and 70, respectively).
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        Advanced RSI Divergences[\b]
        
        • Divergences occur when a technical indicator, like an oscillator, moves in the opposite direction of the price.
          
        • They often serve as an early warning of a trend reversal (via regular divergence signals) or trend continuation (via hidden divergence signals).
          
        • Regular divergences provide an early warning signal of potential trend reversals (i.e., trend weakening).
          
        • Hidden divergences provide an early warning signal of potential trend continuation (i.e., trend strength).
          
        • Regular and Hidden divergences flag in real-time when 'Potential' (default) is selected as the Divergences Confirmation State.
          
        • This feature is a leading indicator that provides the trader with an early warning of a potential trend change (regular divergences) or trend continuation (hidden divergences).
          
        • Potential RSI regular divergence signals are plotted directly on the RSI chart, with bullish and bearish divergences flagging with an ‘R’ below and above the RSI line, respectively.
          
        • Potential RSI hidden divergence signals are plotted directly on the RSI chart, with bullish and bearish divergences flagging with an ‘H’ below and above the RSI line, respectively.
          
        • Confirmed RSI regular divergence signals are plotted directly on the RSI chart, with bullish and bearish divergences flagging with an ‘R-Bull’ below and 'R-Bear' above the RSI line, respectively.
          
        • Confirmed RSI hidden divergence signals are plotted directly on the RSI chart, with bullish and bearish divergences flagging with an ‘H-Bull’ below and 'H-Bear' above the RSI line, respectively.
          
        • Always practice risk management: Use proper position sizing and a stop-loss on every trade.
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