It’s based on the work of Giorgos Siligardos on Reverse Engineering RSI.
The Reverse Engineering EMARSI and SMARSI Indicator shows the Exponential Moving Average and the Simple Moving Average of the RSI line but plotted in the price chart.
This script is also a complement of "Reverse Engineering RSI, by Giorgos Siligardos" script by HPotter but can also be used alone.
By default the RevEngSMARSI is turned off.
The RevEngEMARSI is the white line.
I’ve also added to the indicator:
1) Simple Moving Average (MA) of the EMARSI (EMARSI SMA) - Orange Line
2) Standard Deviation Bands for the EMARSI SMA - turned off by default
Using the settings I left in default (Length's = 1), we can see that when the EMARSI SMA is horizontal the price rises and so does the EMARSI. Also when the EMARSI SMA rises that's a signal that there is a resistance/support at that price. We can observe such thing if we draw horizontal lines at those prices. We can use this to help us put stop-losses and take profits. Also, those resistance/suport prices are ALWAYS the closing price of the first red candle after a bullish trend (big or small trends). Interesting...
When the EMARSI SMA rises and touches the EMARSI 3 things can happen:
- Bullish Trend slows down
- Correction of price
- Trend reversal
So, when the EMARSI SMA rises that can be interpreted as a signal for taking profits.
We should always wait for the price to close in the timeframe we're using, because sometimes the EMARSI SMA rises before the closing price and flattens again when is about to close.
However we should never take decisions based on 1 indicator. Our trading decision should always take in consideration multiple sources of information.
Of course we can use other settings for the trading. And if we do that we will observe different behaviours. And we should also study those behaviours. We can then use the crosses between the lines.
If there is something wrong with the code or its calculations, please let me know.
If you want to modify or improve the code, feel free to do that, but please let me know the changes you made.
This Indicator works in all timeframes. I hope you enjoy it!
There was a mistake at line 43 of the code. Line is now corrected.
"RevEngSMARSI = X2 >= 0 ? close + X : close + X * ( 100 - SmaRSI ) / SmaRSI" is now "RevEngSMARSI = X2 >= 0 ? close + X2 : close + X2 * ( 100 - SmaRSI ) / SmaRSI".
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.